Bitcoin tanked with technology stocks and a wide swathe of other assets over the past 24 hours, tumbling briefly to below $56,000 as spooked investors weighed risks to the US economy.
Declines in stocks, oil, and copper were driven by “a fresh growth scare that smells awfully like the one we had a month ago,” Neil Wilson, chief analyst at Markets.com, said in a note to clients.
“Even gold is down.”
With Bitcoin dropping 5% this week, September is already shaping up to be a volatile month.
While there was no singular trigger for yesterday’s sell-off, Nvidia received a subpoena from the Department of Justice related to an antitrust probe, helping to spread fear that mirrored a one-day August 5 plunge in global markets.
Meanwhile, a closely watched manufacturing gauge yesterday signalled a weaker-than-expected economy, while oil slumped on fears about waning global demand.
The yen rose, and the “fear gauge” VIX, which measures volatility in the market, also spiked.
The question now, Wilson said, “is whether the Fed blinks” and slashes interest rates by as much as 50 basis points — the larger end of analysts’ estimates for an expected US cut later this month.
“That could signal panic and could trigger further losses.”
The CME Group’s FedWatch tool puts the likelihood of a 50-basis point cut at 41% and a 25 point cut at 59%.
What’s next for Bitcoin?
An August report from the Bank for International Settlements said that the underlying drivers of the August 5 panic that swept the globe could soon come back to haunt markets.
Japan’s central bank triggered the August meltdown when it raised interest rates, which sent the yen higher and upended millions, perhaps even trillions, of dollars in trades.
Crypto investor Arthur Hayes echoed that view.
He said that while the Bank of Japan “caved” by halting planned rate rises, markets could still be in danger if the yen strengthened against the dollar.
That’s because investors operating the so-called yen carry trade will suffer losses if they end up having to pay back their yen loans with depreciated dollars.
“Expect a negative market reaction” if global rate cuts end up strengthening the yen against the dollar, Hayes wrote last month.
That reaction will overwhelm the benefits of lower borrowing costs in the US.
The amount of financial assets financed in yen is in the trillions, Hayes estimated.
Others’ estimates are more conservative, but the risk lingers.
