Bitcoin drops below $90,000

Bitcoin’s slide below $90,000 worsened a slump across global financial markets, fuelling concern that leveraged investors would set off a spiral of selling pressure, according to Bloomberg.

The cryptocurrency fell as much as 2.8 per cent on Tuesday before paring some of the retreat. Equity benchmarks in Europe and Asia dropped more than 1.0 per cent, and US equity futures were pointing to another day of losses.

Joseph Zhang, a portfolio manager at Fidelity International, said recent declines across asset classes are partly due to a spillover from crypto. Some market watchers also raised the prospect that the crypto selloff would trigger more selling by retail investors, who may need to offload other assets to meet margin calls. That risks creating a feedback loop, as sliding prices in one market fuel selling pressure elsewhere.

“We could see further downside risk for crypto as portfolio adjustments are made either by choice or to cover losses in equities,” said Nick Twidale, chief market analyst at AT Global Markets in Sydney.

The decline of the world’s most popular cryptocurrency comes as investors fret about the pace of US interest rate cuts and shift their focus to high-profile earnings including Nvidia Corp, which announces this week. But Bitcoin’s drop below $90,000 was enough to turn a broad selloff during the Asian morning into a rout.

“Bitcoin’s extended selloff has definitely amplified the market’s risk alarm, reinforcing the sense that something deeper may be shifting under the surface,” said Hebe Chen, an analyst at Vantage Markets in Melbourne.

At Fidelity International, Zhang said that once the selling plays out, it’s possible that markets will rebound. Bitcoin was down just 1.0 per cent as of 9:52am in London, and S&P 500 futures dipped 0.2 per cent.

“Over the past week or so, we have observed many assets falling at the same time,” he added. “That suggests that it’s actually liquidity-driven tightness.”

In Asia, however, the mood among investors was further worsened by a heavier stock selloff in Japan, pressured partly by concerns over the country’s fiscal woes and a diplomatic spat with China.

The Nikkei 225 Stock Average finished Tuesday down 3.2 per cent, while yields on 10-year Japanese government bonds rose to the highest since mid-2008 — defying the rush to government bonds elsewhere.

A selloff across markets can become self-reinforcing even without the amplifying effect of leverage. Cryptocurrencies have boomed alongside stocks this year, after investors moved on from fears of a global trade war and started to bet on innovation to fuel a cross-market rally. Those hopes now appear to be fading.

“Momentum is a self-feeding machine,” said Anna Wu, cross-asset investment strategist at Van Eck. “The weakening US sentiment, led by traders selling Nvidia positions ahead of its earnings and macro data, has spilled into Asian markets. If we use Bitcoin as a market sentiment gauge — it’s pointing to bear-market level fear.”