Bitcoin rebounds from 8% drop amid regulatory pressure and rising interest rates

World's largest cryptocurrency fell below $26,000 for the first time in two months as it tracked declines in bonds and equity markets

The sharp drop in Bitcoin prices is reminiscent of the digital token's volatile intraday moves over the past two years. Bloomberg

Bitcoin rebounded on Friday after falling below $26,000 for the first time in two months amid a regulatory clampdown, rising interest rates and reports that Elon Musk’s Space X sold its holdings of the digital asset.

In frantic 10-minute trading, the world's largest cryptocurrency slumped by about 8 per cent, to $25,409.11 on Thursday, before recovering some of its losses. It was trading at $26,549 at 10.21am UAE time on Friday.

Bitcoin's sharp drop followed a report by The Wall Street Journal that said SpaceX wrote down the value of its holdings in the cryptocurrency by $373 million and had sold the digital asset.

Announcements and comments by Mr Musk or entities he controls tend to move cryptocurrency markets and are closely watched by traders of digital assets.

In February 2021, Bitcoin moved 15 per cent higher in a day to $44,000 after Tesla said it would accept it as payment and then poured $1.5 billion into the digital asset.

In July 2022, the electric car maker sold 75 per cent of its holdings, driving sharp drops in the cryptocurrency’s price.

The move on Friday is reminiscent of Bitcoin’s volatile intraday moves over the past two years. It follows a period in which the cryptocurrency traded in a narrow range for months.

Gauges that measure the price swings of the cryptocurrency have been trending lower, with 90-day volatility at its lowest since 2016 this week, according to data compiled by Bloomberg.

The token, which lost 64 per cent of its value last year amid a series of exchange failures and bankruptcies, is up more than 58 per cent since the start of the year.

The downward movement of cryptocurrencies over the past few weeks comes on the back of US regulators clamping down on the sector.

In June, the Securities and Exchange Commission filed lawsuits against Binance and Coinbase, among the largest global cryptocurrency exchanges, accusing them of breaching regulations by selling the token to the public without required permissions.

The companies have denied the accusation.

While news of SpaceX's divestment added to negative sentiment, the drop in Bitcoin follows weakness in bonds and equity markets as investors increasingly become risk-averse amid a slowing global economy and prospects of higher interest rates for a longer period.

Stocks and bonds markets have dropped since the US Federal Reserve raised its benchmark rate to the highest level in 22 years in July.

The banking regulator said there could be more interest rate increases this year to bring inflation down to its target range of 2 per cent.

Higher interest rates generally subdue appetite for alternative investments such as cryptocurrencies.

On Wednesday, the Fed’s Open Market Committee minutes showed that the US regulator continues to see significant risks to inflation, which has intensified the sell-off in global equities.

“When you throw in what is happening in the bond market, it becomes easy for Bitcoin prices to soften,” Edward Moya, a senior market analyst at Oanda, said.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said Bitcoin was a gauge of market liquidity and the simultaneous sell-off in stocks and bonds is also a sign that the market liquidity was draining.

“According to CoinGlass, $1 billion left cryptocurrencies over the past 24 hours and Bitcoin suffered almost half of the liquidations,” she added.