Many stocks in the orbit of leading cryptocurrency Bitcoin (CRYPTO: BTC) plunged in August. Here are a few prominent examples, according to data from S&P Global Market Intelligence:
As expected, exchange-traded funds (ETFs) tied to Bitcoin's spot price, such as the iShares Bitcoin Trust ETF (NASDAQ: IBIT), matched the cryptocurrency's 10.4% price drop almost exactly. Meanwhile, the enthusiastic Bitcoin investors of MicroStrategy (NASDAQ: MSTR) and the cryptocurrency miners at Riot Platforms (NASDAQ: RIOT) demonstrated the boosted volatility that results from adding dollar-based investments to the unpredictable Bitcoin asset over time. MicroStrategy's stock fell 18%, and Riot's investors took a 26% hit.
The reasons for Bitcoin's recent price moves
First and foremost, why did Bitcoin fall last month? Isn't this cryptocurrency (and the sector in general) supposed to experience a massive boom right now? There's a four-year cycle of Bitcoin price boosts based on the predictable halving of miner rewards, which also halves its inflation rate. On top of that, capital pouring into those new spot Bitcoin ETFs should accelerate the price gains.
And still, Bitcoin's price is down 21% from an all-time high of $73,750 in March, about a month before the all-important rewards halving.
What gives?
As it turns out, you're looking at a mix of economic concerns and a misunderstanding of the classic halving cycle. Bitcoin is widely seen as a risky investment, making it sensitive to changes in the economy.
For instance, it shows price gains and increased trading activity when interest rates on new debt are low. The opposite is true when interest rates go up. Lower certainty about where debt rates will go in the near future can also hurt Bitcoin's price, and that's a leading reason behind August's price drops.
The Federal Reserve was supposed to look into lowering interest rates someday soon, but conflicting economic reports lowered the chances of that policy change in early August. The next Fed meeting could still end with a long-awaited rate-cutting move, but that outcome is not guaranteed today -- and it certainly wasn't a slam-dunk forecast by the end of August. So Bitcoin battled these economic headwinds all month long.
As for the lack of price-boosting power from the rewards halving, it should be noted that the price gains tend to come several months after the halving.
Three months after the 2016 halving, for example, Bitcoin's price had fallen 5%. But it was up 40% after another three months and posted a 262% gain after a full year.
