Market News

(Bloomberg) -- Bitcoin is having its worst week since November as an equity selloff, jitters in the banking sector and an escalating US regulatory crackdown on crypto combine to hurt investor sentiment.

The largest token fell as much 3.2% on Friday, breaking below $20,000 for the first time since January, after falling more than 8% on Thursday, data compiled by Bloomberg show. Smaller coins like Ether, Solana and Cardano also fell, though Bitcoin recouped some of its losses on Friday afternoon and other tokens turned positive after earlier declines. 

Anxiety spiked across all risk-asset classes after news that Silicon Valley Bank collapsed into Federal Deposit Insurance Corp. receivership on Friday, sparking a selloff in US stocks and many banks, as analysts weighed contagion risk. SVB’s failure follows the wind-down of crypto-friendly bank Silvergate Capital Corp. that weighed on market sentiment earlier this week. 

“With Silvergate headlines quickly being eclipsed by Silicon Valley Bank, macro is fully in the drivers seat now,” said Spencer Hallarn, derivatives trader at crypto investment firm GSR. “The broad stock market and crypto weakness is attributable to the problems at SVB and fears of it existing elsewhere.”

Silicon Valley Bank became the first bank to fail in 2023, as the California Department of Financial Protection and Innovation on Friday said it had taken possession. It spurred concern about which other institutions could be affected at a time when the Federal Reserve is deploying its most-aggressive tightening campaign in a generation. 

For crypto to sell off in this environment makes sense, analysts say, because of its risk-asset characteristics. 

“It’s collateral damage,” said Alec Young, chief investment strategist at MAPsignals. “And that’s expected by crypto investors — that’s what you sign up for with crypto.”

Other crypto-centric stocks also took a hit, among them MicroStrategy Inc., Riot Platforms Inc. and Coinbase Global Inc. extending the week’s losses on Friday. 

“The selloff in cryptocurrencies appears to be largely equity-market led,” said John Toro, head of trading at digital-asset exchange Independent Reserve. He added that Silvergate’s wind-down and President Joe Biden’s proposal for a series of tax increases on investors and top-earning Americans contributed to the downdraft.

Bitcoin’s afternoon bounce back may be attributable to bargain-hunting after the weekly declines. Another possibility is that some investors may be starting to bet that the recent turmoil in markets and in the banking sector may serve as a restraining force for the Fed.

“An interesting second derivative of this situation is that it could begin to tie the Fed’s hands on its inflation fighting initiatives,” said GSR’s Hallarn. “Down the road there could come a point where the Fed has to slam the brakes on its restrictive monetary policy activities to calm the banking system which could ultimately be bullish for Bitcoin and its monetary store of value properties.”

The industry still faces regualtory pressures. On Thursday, New York’s state attorney general sued KuCoin, a popular crypto exchange, and in the process claimed in court that second-largest token Ether is a security. The US Securities & Exchange Commission also contends that many cryptocoins are securities, a designation that would potentially make them harder to trade.

Bitcoin has shed about 11% so far this week, the most since a 23% weekly tumble in November amid the collapse of Sam Bankman-Fried’s FTX platform.

Among smaller tokens, some of the spotlight fell on HT, the native token of the Huobi exchange. HT on Thursday rapidly halved in price at one point before paring some of the losses. It has fallen about 18% in the past 24 hours. 

China-born crypto mogul Justin Sun, an adviser to Huobi, indicated a $100 million fund had been set up to improve the platform’s liquidity.

Sentiment in digital-asset markets as a whole has taken a knock from the demise of Silvergate’s payments platform for crypto firms, as well as Chair Jerome Powell’s stance that the Federal Reserve is likely to take rates higher than previously anticipated.

“Crypto native themes, running in parallel with choppier equity markets, is the perfect recipe for volatility,” said Edmond Goh, head of trading at B2C2.

Bitcoin has now dipped below its 200-day moving average, which for some analysts could portend more falls.

The token will likely trade in the lower end of a range from about $15,500 to $25,000, said Tony Sycamore, market analyst at IG Australia Pty. “Risk sentiment has really deteriorated this week,” he said. “Powell was more hawkish than what markets were expecting.”

--With assistance from Akshay Chinchalkar, Eva Szalay and Sunil Jagtiani.

(Adds new SVB context, updates prices throughout.)