Bitcoin rallied on Monday afternoon, trading above $37,000, after falling to a seven-month low in the morning, as the cryptocurrency moved in lockstep with a swift rally in risk assets.
Bitcoin was trading at $36,800 at 5 p.m., up, 4.7% on the day, according to CoinDesk. In the morning, it traded below $33,000 for the first time since July. That extended its selloff to a more than 50% loss from its record high of $68,990.90, set on Nov. 10.
The drop shouldn’t come as too much of a surprise to crypto enthusiasts. It is the eighth time since Bitcoin launched in 2009 that it has fallen by more than 50%, and the third time since 2018, according to Charlie Bilello of Compound Capital Advisors. From April through July last year, it fell 52%.
Cryptocurrencies have been swept up in a broad market selloff hitting riskier assets, especially technology companies. The driver, analysts say, is the U.S. Federal Reserve and its plans to pull back stimulus from the economy and raise interest rates. The tech-heavy Nasdaq stock index has declined 12% since the start of the year.
“Crypto is a high-growth nascent industry that trades as a risk asset,” said Martha Reyes, head of research at Bequant, a European digital-assets brokerage. “It’s quite dramatic this morning and completely driven by the macro environment, buffeted about by the Fed.”
Retail investors also appear to be taking a step back from investing in crypto, according to Ms. Reyes. The volume of smaller-size transfers, a proxy for retail trader use, declined by over 40% between the first and fourth quarters last year, according to data from Glassnode, a blockchain data research firm.
This may be because market interest is shifting toward trendier digital assets. Google searches for ‘NFT’, the acronym for nonfungible tokens, climbed steadily all of last year and into 2022. Meanwhile, searches for “bitcoin” fell last June and remained at depressed levels until rising during last week’s selloff.
Some cryptocurrencies have fallen even further than bitcoin. Ether, the second-most popular digital currency, is down 50% from the last record it notched, also in November. Solana, a cryptocurrency that gained popularity last year, has fallen 64% and Shiba Inu, another digital currency based on a meme, declined 74%.
Those losses have collectively pulled the overall crypto market’s value down to about $1.65 trillion, according to CoinMarketCap, a drop of 44% from its November high of $2.97 trillion.
“It makes sense to me for broad crypto to get hit hard. It’s all about innovation, which should correlate with risky assets,” said Joel Kruger, a currency strategist at exchange LMAX Group. “Ether is almost like an index, the sum of all of the projects together on the ethereum blockchain” such as games, NFTs, decentralized finance projects and smart contracts.
The moves are in a sharp contrast to some investors’ and analysts’ expectations. A JPMorgan analyst said in October that bitcoin could eventually reach $146,000.
In the immediate future, traders are focused on a far closer number: $30,000, which is significant for reasons beyond being a large, round number. That level is roughly the low point of the April-July 2021 selloff, and it is also about where bitcoin opened in 2021.
Falling below it therefore would put bitcoin’s price back into its 2020 levels. That means everybody who bought their first bitcoin over the past 13 months—and the size of the crypto market doubled during that time amid a rush of new buyers—would be in the red.
“This is a key moment for bitcoin,” said Oanda analyst Edward Moya. “If panic selling returns on Wall Street, the $30,000 level might not prove very supportive.”
Write to Anna Hirtenstein at anna.hirtenstein@wsj.com
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