(Bloomberg) — Cryptocurrency prices slumped as a broad selloff sparked by worries about contagion from China Evergrande Group swept through global markets.
Bitcoin dropped as much as 10.7% to $42,522 in New York trading hours, reaching the lowest level since the beginning of August. That point is also below its Sept. 7 low, when the coin dropped as much as 17% in less than an hour. Other digital assets also retreated, with Bitcoin Cash, EOS and Ether all declining.
The losses mirrored the action in the broader market as investors weighed the risks coming from Evergrande’s debt woes and this week’s Federal Reserve meeting. U.S. equity futures pointed to losses at the open and the Stoxx Europe 600 index dropped as much as 2%, on track for the biggest decline since July.
The swiftness of the plunge was likely accelerated as more than 249,000 traders had their accounts liquidated over the past 24 hours, equal to around $1.23 billion worth of crypto, according to data from Bybt, a crypto futures trading and information platform.
“Some have attributed the sudden dip to the currently ongoing Evergrande situation in China which has already caused turmoil in traditional markets,” wrote Jonas Luethy, a sales trader at GlobalBlock, the U.K.-based digital asset broker. “Analysts have suggested a choppy week is ahead, with a potential pullback to as low as $41,000.”
Although Bitcoin doesn’t always trade in tandem with financial markets — a characteristic that made it a tempting proposition from a portfolio-diversification point of view — its correlation on a 30-day basis to futures on the Nasdaq 100 has been consistently positive since February last year. A reading of 0.5 — which it’s close to now — means they’re moving in the same direction quite often these days.
Investors say that while a link with tech stocks make sense — both types of investments may be thought of as appealing to the same tech-savvy investor pool — strong correlations are also showing up for small-cap stocks and the S&P 500. That’s probably because as Bitcoin becomes more integrated in global financial markets, it should respond more to the changes in risk appetite that drives global sentiment.
Meanwhile, El Salvador’s President Nayib Bukele said the country had “bought the dip,” in Bitcoin, adding 150 tokens to raise its total holdings to 700 — about $32 million based on current pricing. The nation recently adopted Bitcoin as legal tender in a controversial move that met with technical glitches and protests.
El Salvador’s enthusiastic adoption of Bitcoin is one of the reasons why prices have been trending higher and recently hit a four-month high. Still, the market has a way to go before recovering losses since a selloff in May.
“On a day like today, where you have the perfect storm, I think people just go to, ‘What can I sell quickest? What do I have access to at 2 in the morning?,’” said Scott Bauer, chief executive officer at Prosper Trading Academy. “If they’re holding crypto, which is obviously an around-the-clock market, maybe that’s the first place they look,” he said, adding that the news out of China is a negative for the crypto space.
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