Bitcoin (BTC-USD) rose 5% on Tuesday, rebounding slightly after experiencing its worst week since the collapse of Sam Bankman Freed’s FTX cryptocurrency exchange in November 2022.
The world’s largest cryptocurrency fell 20% last week, hitting record lows on Sunday and early Monday amid a broader correction across financial markets.
Bitcoin prices briefly dipped below $50,000, their lowest since February, and have fallen more than $13,000 in the past seven days.
The second-largest cryptocurrency, Ether (ETH-USD), suffered even bigger losses, falling 27% over the past seven days and at one point recording its biggest one-day drop since late 2021.
The crypto sell-off comes after a series of events that gave investors new hope that the digital asset bull market was just beginning and that the industry had weathered a severe collapse in 2022 that forced some of the biggest companies, including FTX, to go bankrupt.
Indeed, just two weeks ago, as former President Donald Trump prepared to speak at a Bitcoin conference in Nashville, Bitcoin was closing in on its all-time high of $74,000, hit in March.
The endorsement from a Republican presidential candidate has many in the industry hopeful that we may see a friendlier regulatory approach from Washington, D.C., in 2025 and beyond.
Investors are also excited by the U.S. Securities and Exchange Commission’s approval of a major asset manager to launch a new exchange-traded fund that holds Ethereum, one of the latest examples of Wall Street embracing the cryptocurrency.
These ETFs could make Ethereum a potential staple asset for 401(k) plans, IRAs and pension plans, leading to more mainstream acceptance of digital assets.
Republican presidential candidate and former president Donald Trump speaks at the Bitcoin 2024 conference in Nashville on July 27. (Associated Press/Mark Humphrey) (Associated Press)
Many of the same SEC-approved asset managers already had ETFs that invested directly in Bitcoin.
But one industry source said the new products could drive down prices in the short term.
According to Noel Acheson, author of the Crypto Is Macro newsletter, because ETFs don’t trade over weekends like the digital assets they hold, these products could cause a “piles of sell orders” that could “make markets even more volatile.”
Digital asset ETFs and other investment vehicles recorded their first weekly outflows in a month last week, totaling $528 million, with the majority of the outflow coming from Bitcoin, according to cryptocurrency manager CoinShares.
Other observers urged calm about the market turmoil on Monday. Bitcoin is still up 27% year to date, while Ethereum is up 6%.
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“We are not surprised by Bitcoin’s sharp reaction,” Gautam Chugani, senior digital assets analyst at Bernstein, said in a note on Monday, noting that “Bitcoin saw a similar reaction” when the COVID-19 pandemic began in March 2020.
However, “I don’t see any negatives for crypto here. Bitcoin’s institutional adoption trend, i.e. ETF inflows and brokerage/bank approvals, is progressing well,” he said. “US politics remains a big near-term factor for the crypto market.”
Leverage across the cryptocurrency market exaggerated the recent sell-off.
By mid-morning on Monday, roughly 307,000 traders had cleared more than $1.23 billion in crypto derivatives trades in 24 hours, according to data provider CoinGlass.
Though the number of liquidations decreased throughout the day, more than a quarter of the losses were in Bitcoin, with the largest loss coming from China-based crypto exchange Huobi’s $27 million worth of long Bitcoin positions.
Cryptocurrency-related stocks also fell.
Shares of U.S.-based exchange Coinbase (COIN) closed down 7.32% on Monday, while shares of MicroStrategy (MSTR), the largest holder of Bitcoin, fell 9.60%.
Pressure eased throughout the day for Bitcoin miners Marathon Digital (MARA) and Riot Platforms (RIOT), both of which closed down 1.40% and 3%, respectively.
David Hollerith is a senior reporter at Yahoo Finance covering banking, cryptocurrency and other areas of finance.
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