Cryptocurrency Prices Drop Amid Macroeconomic Factors and Regulatory Actions
Cryptocurrencies faced a turbulent period recently, with Bitcoin, Ether, and other major cryptos suffering considerable losses. Bitcoin plummeted to a two-month low of around US$25,400, only to bounce back slightly and trade around US$26,800 the following Thursday morning in Asia. However, this was not an isolated incident. Other top 10 non-stablecoin cryptocurrencies experienced similar declines due to macroeconomic factors and regulatory actions.
Bitcoin slid 7.02% in the last 24 hours to US$26,819.27 as of 07:20 a.m. in Hong Kong, recording a weekly loss of 8.88%, according to CoinMarketCap data. The world’s leading cryptocurrency hit a two-month low of US$25,409.11 on early Friday morning. Consequently, Bitcoin prices broke the critical support level at US$28,000 during late US/early Asia trading volumes. “Realized volatility had hit 18%; the last time volatility was this low, in November 2018, Bitcoin’s 30-day realized volatility spiked to over 100% as prices crashed by 46%. In Bitcoin, sharp price declines have often followed low volatility periods,” said Markus Thielen, head of crypto research at Matrixport. Consequently, a sharp decline was anticipated.
Macroeconomic Factors and Regulatory Actions Contributing to the Decline
Significantly, the depreciation of the Chinese yuan and the bankruptcy of Chinese property giant Evergrande negatively affected investor sentiment. Additionally, there is the looming shadow of macro risks. “The biggest is a potential devaluation of the Chinese Yuan, trading at the weakest level since 2007. In August 2015, when China devalued the Yuan for the last time, Bitcoin prices declined by -23% during the two weeks following the devaluation,” Thielen added.
Moreover, regulatory actions further hit investor sentiment. The SEC obtained approval to file a motion to appeal a recent favorable ruling for Ripple Labs regarding retail sales of token XRP. According to Thursday’s court filing, the SEC will file a motion for appeal on Friday, and Ripple has until September 1 to file its opposition papers.
The bearish sentiment in Bitcoin was also affected by a Friday report by The Wall Street Journal, which revealed that Elon Musk-founded rocket company SpaceX wrote down the value of its Bitcoin holdings by a total of US$373 million in the past two years. Justin d’Anethan, head of APAC business development at Belgium-based crypto market maker Keyrock, commented, “This is really a past event, but it is still news, and investors understandably saw this as a bearish catalyst on top of macro moves.”
The total crypto market capitalization dropped 5.69% in the past 24 hours to US$1.07 trillion, edging close to the psychologically important US$1 trillion threshold. As investors liquidated $1 billion in cryptocurrencies, trading volume surged 78.91% to US$60.58 billion.
Hence, the cryptocurrency market faces multiple headwinds, from macroeconomic factors to regulatory actions and negative news. Consequently, these factors contribute to the recent sharp declines in cryptocurrency prices.