New volatility for bitcoin ends summer slumber for crypto investors

A new wave of volatility is rippling through the crypto world, ending a period of recent summer slumber for investors in digital currencies.

The price of bitcoin (BTC-USD) tumbled as much as 9% Thursday and briefly dropped below $26,000, the biggest one-day change in the world’s largest digital currency this year. It is down 8% over the last 24 hours as of 11:30 a.m. New York time Friday.

Investors sold $489 million in bitcoin futures over a 24-hour period, the largest single-day liquidation since June 2022, according to data provider Coinalyze.

Market watchers grasped at several theories for the sudden downward movement. Some pointed to news from The Wall Street Journal that Elon Musk’s SpaceX had reportedly written down the value of its crypto holdings in 2021 and 2022 and sold those holdings.

Others pointed to fears of a worsening macroeconomic outlook that might dampen appetite for riskier assets, citing the bankruptcy filing of Chinese property developer Evergrande as well as the possibility that the Federal Reserve could hold interest rates higher for longer.

“The next week or two is going to be extremely important for this asset class,” Matt Maley, chief market strategist with Miller Tabak + Co. said in a Friday note, pointing to both the “higher-for-longer” outlook at the Fed and “forced selling” in the crypto derivatives market as contributors to bitcoin’s sharp drop.

Bitcoin’s high point came in 2021 when it surged to $68,789 during an industry boom triggered by a period of low interest rates and fiscal stimulus that put excess savings in the pockets of investors. The market crashed in 2022 as the giant crypto exchange FTX collapsed, before making a surprise comeback during the early half of 2023.

The forced selling in the bitcoin derivatives market over the past 24 hours has resulted in the largest single day liquidation event for Bitcoin since June 2022, according to data provider Coinglass.

Analisa Torres, a US judge in the Southern District of New York, said on July 13 that a digital token issued by Ripple Labs and not when it was purchased by the general public. The SEC had also sued Ripple for selling unregistered securities.