The cryptocurrency fell more than 20% to its lowest level in months, but recovered slightly from the bottom.
Bitcoin, the largest cryptocurrency by market capitalisation, fell more than 20 per cent to $42,000 at midnight on Saturday, before recovering slightly, according to CoinDesk. By Sunday afternoon, it was trading at about $49,200, down 8 per cent from Friday and down 14 per cent from earlier in the month.
This decline is typical of the entire cryptocurrency world. Other widely traded cryptocurrencies, such as Solana, Dogecoin and Shiba Inu coin, temporarily lost more than a fifth of their value.
The second largest cryptocurrency, Ether, also fell late on Friday, but recovered most of its losses on Sunday.
Noel Acheson, head of market analysis at cryptocurrency bank Genesis Global Trading, cited the liquidation of positions in highly leveraged cryptocurrency derivatives as another possible catalyst for the Bitcoin sell-off. He noted that a large number of sell orders could have led to margin calls and investors liquidating their positions.
Trading cryptocurrency derivatives has become big business for exchanges such as Binance, the world’s largest. Traders can use futures contracts to bet on the rise or fall of a particular cryptocurrency. They can also make high-level bets with smaller amounts of money to make the returns more attractive. When the price of a cryptocurrency plummets, margin calls can force investors to liquidate.
The price of bitcoin fluctuated on Saturday after El Salvador’s President Nayib Bukele, who adopted bitcoin as the country’s currency in September, tweeted that “the country bought 150 bitcoins at an average price of $48,670″. El Salvador just bought a dip.” he said. He said. He then posted a laughing emoji, writing that the country had “missed the damn bottom by 7 minutes”.
This is not the first time El Salvador has entered the market after a price crash. These interventions have turned this small, poor country into an unofficial central bank that maintains a digital currency, just as regular central banks intervene in foreign exchange markets to stabilise them.
Cryptocurrencies are far more volatile than stocks or government-issued currencies. The stock market has been a rollercoaster ride this week as investors have been uncertain about the evolution of the pandemic and inflation. Just as travel resumed, Omicron’s election triggered new restrictions around the world. Scientists are still trying to determine the efficacy of the current Omkron vaccine.
Fears of a further slowdown in economic growth are intertwined with growing concerns about inflation at the Federal Reserve. Chairman Powell said last week that the central bank is poised to unwind its monetary policy stimulus at a faster pace than expected, paving the way for a rate hike in the first half of next year.
Rising interest rates have made it less attractive to hold speculative assets such as Bitcoin; when the Federal Reserve raised rates in 2017 and 2018, the price of Bitcoin plummeted, leading cryptocurrency enthusiasts to dub it the “Bitcoin winter”. During the pandemic, the currency recovered. Bitcoin reached an all-time high of $67,802 on 9 November.