Bitcoin Tumbles As Crypto Market Plunge Erases $150 Billion—But ‘Worst May Be Ahead’

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Topline

The price of bitcoin tumbles below $40,000 for the first time in two weeks on Friday as the threat of a Russian invasion of Ukraine continued to drive a broad market selloff, leading some analysts to say the crypto market’s recent weakness won’t subside until the tensions are resolved and could even worsen amid looming inflation.

The price of bitcoin tumbled below $40,000 for the first time in two weeks on Friday.

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Key Facts

The world’s most valuable cryptocurrency fell as much as 5% Friday morning to about $39,791 by 11 a.m. ET, its lowest price since February 4, as other top tokens also plummeted, with ether and sol down about 6% apiece.

In a Friday morning email, analyst Marcus Sotiriou of cryptocurrency broker GlobalBlock attributed the losses to increased tension in Europe on Thursday, when President Joe Biden told reporters that “every indication” points to Russia invading Ukraine in the “next several days”—triggering a selloff that wiped about 2% from major stock-market indexes.

Crypto analyst Yuya Hasegawa of Japanese exchange Bitbank was slightly optimistic about the short term, saying bitcoin has held above $39,650 long enough to suggest resilience barring any escalating conflict, but he cautioned the “make or break” situation at the border was only one of several events sure to test bitcoin’s price in the coming weeks.

Chief among concerns, Hasegawa pointed to the possibility of the Federal Reserve raising interest rates by 50 basis points next month (more than the 25-basis-point hike widely expected), which may be likely after St. Louis Fed President James Bullard cautioned last week that inflation “could get out of control.”

As such, inflation data and the January jobs report in the weeks to come could also spur losses, Hasegawa said, particularly if the Bureau of Labor Statistics reports another higher-than-expected inflation figure, which could pressure officials to hike rates aggressively to help combat the surging prices.

Eli Ndinga, a research lead at cryptocurrency issuer Amun, agreed in an email, saying the recent inflation reports have “instilled fears that the U.S. economy could be headed towards a recession” as the Fed reverses pandemic-era stimulus measures.

Crucial Quote

“It is safe to say that, depending especially on the inflation data, the worst may be ahead of us, and even if [bitcoin’s] price rebounds… in the short term, its upside is likely quite limited unless the Russian military shows some signs of retreating,” Hasegawa said.

Key Background

Growing institutional adoption and inflationary concerns helped lift cryptocurrencies to meteoric new highs during the pandemic, but the market has since soured. The rapid pace of inflation, which has been rising for months at the fastest rate since 1982, has prompted Fed officials to reverse their pandemic-era policy more quickly than economists expected. “This puts risk asset classes such as crypto and tech stocks in a challenging spot, Ndinga said Friday. The value of the world’s cryptocurrencies has plummeted more than 33% to $1.9 trillion since hitting an all-time high of $3 trillion in November, with about $180 billion of that wiped amid the escalating tensions between Russia and Ukraine this week.

What To Watch For

The Fed’s next two-day policy meeting concludes March 17, when officials are expected to announce if—and by how much—they’ll raise interest rates.

Tangent

Despite the recent price weakness, traditional financial institutions are still expanding their exposure to cryptocurrency. On Thursday, storied venture firm Sequoia Capital announced it has launched a crypto-focused fund with between $500 million and $600 million.