Bitcoin Is Headed for Its Worst Week in Years. Why Cryptos and Stocks Are Going Different Directions Today. — Barrons.com
By Anita Hamilton and George GloverCryptocurrencies missed out on the broader market rally Friday. While the tech-heavy Nasdaq shook off its Thursday slump, crypto investors aren't ready to take on more risk.Bitcoin was trading down nearly 2% at $84,859 Friday, while all three major stock indexes were up by about the same amount.The simple explanation is that Bitcoin has dropped more than 30% since its Oct. 6 peak, leaving many holders underwater on some of their purchases. Because crypto is often held in margin accounts, some likely had to sell to cover their losses, pushing the price down even further.The broader stock market, while volatile, is still riding relatively high. The S&P 500 is down just 4% from it's late October peak of around 6,890.There could be more pain ahead for Bitcoin. "From a demand perspective it appears there is an early, yet growing, sense of concern that could evolve into full-on panic if the selling pressure continues to intensify further than it already has, as lower prices would prompt more selling in a doom loop of sorts," analysts at the financial research firm Sevens Report wrote on Friday.The world's largest crypto is trading 33% below its record high of $126,272 in early October. It's also on pace for its worst week since November 2022, when the collapse of crypto exchange FTX sparked a brutal selloff.Other digital assets weren't doing any better. Ethereum dropped 3.8%, Solana fell 3.9%, and XRP tumbled 2.8%.Several factors have driven the recent plunge in crypto prices.First, investors are unsure if the Federal Reserve will cut interest rates next month. If the central bank holds borrowing costs steady, that would make Bitcoin and its peers less appealing relative to interest-bearing investments such as bonds and savings accounts.Second, the market has decided this is a good time to rotate out of risk assets, amid questions about lofty artificial-intelligence valuations.A third issue is that many investors bought Bitcoin at around $90,000. With it now trading below that, they may be hesitant to keep buying while their investments are underwater, especially if they borrowed money to buy it and are now facing margin calls. That is when brokers demand more cash from investors to cover the loans. That, in turn, can lead to forced selling, which puts additional negative pressure on the asset's price.Don't count on the crash stopping just here. There could be sizable price swings next week, given that volumes are likely to be thin from Thursday onward due to Thanksgiving. That means it wouldn't take much pressure for Bitcoin to continue dropping."Liquidity will likely dry up across markets this week and heading into the holiday season," Adam Morgan McCarthy, head of research at the crypto data provider Kaiko, told Barron's. "This could exacerbate moves if investors continue to par positions before the holidays and liquidity dries up more."Write to Anita Hamilton at [email protected] and George Glover at [email protected] content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.