It’s becoming increasingly common: when stocks fall, so does bitcoin.
Bitcoin, the world’s largest cryptocurrency by market value, fell below $37,000 on Friday to its lowest dollar value since August 2021, according to CoinDesk. It settled at $36,689.39, down 11% from Thursday and down 46% from its record set in November 2021.
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The decline followed a late afternoon swoon in the stock market on Thursday.
Cryptocurrencies and stocks have tumbled since the beginning of the year, responding to investor concerns about how a string of expected Federal Reserve rate hikes will ripple through the markets.
“Cryptocurrencies are no longer an isolated risk asset and are responsive to changes in global politics,” said Clara Medalie, director of research at cryptocurrency market data provider Kaiko. “It’s not surprising that both will become more volatile as liquidity taps close.”
A measure of how bitcoin has become more intertwined with the markets, the cryptocurrency is near its highest correlation with the stock market since September 2020, according to Kaiko. That means when the stock market falls, so does bitcoin.
This parallel movement has vacillated over time, with long stretches in which Bitcoin and other cryptocurrencies move on their own impulses.
The widespread acceptance of cryptocurrencies among investors may have made them more vulnerable to stock sell-offs.
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Friday’s decline in Bitcoin dollar value coincided with a 20% drop in Netflix shares, shedding more than $40 billion in market cap. The streaming giant expects to add a much smaller number of subscribers this quarter than it did a year ago.
Some analysts believe that sell-offs in popular tech stocks could prompt investors to liquidate positions in their crypto holdings to limit overall losses and meet margin calls, demands from brokers to post cash to cover potential losses on borrowed-money trades .
BITCOIN DECLINES IN 2022 UNDER THE WEIGHT OF STOCK SELL-OFF AND FED POLICY
“That’s exactly what we’ve experienced before. Bitcoin is such an excellent store of liquidity that it is called upon in times of margin calls,” said Chris Bendiksen, head of research at London-based asset management firm CoinShares.
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Shares of cryptocurrency stocks, which tend to track Bitcoin’s performance, also fell. Cryptocurrency exchange Coinbase Global fell 13%. MicroStrategy, which makes enterprise software but has billions of dollars invested in Bitcoin and whose CEO Michael Saylor is an outspoken cryptocurrency advocate, lost 18%.
Write to Caitlin Ostroff at [email protected]