Bitcoin dropped by almost 5% on Monday after a bruising weekend when, at one point, it lost over a fifth of its value. It’s now trading at roughly $49,200, down from about $57,000 at the beginning of December.
Traders said the fall was connected to a broad move away from riskier assets in traditional markets over worries about the Omicron variant of the coronavirus and uncertainty over the Federal Reserve inching toward tighter monetary policy in the face of surging inflation.
“We expect that cryptocurrencies will continue to be driven by the appetite for risk in other markets,” said Matthew Dibb, COO and co-founder of Stack Funds. “New COVID variant concerns, as well as tapering, have been a major concern here, and we see this being a predominant theme for the remainder of Q4.”
As prices fell, some bought in, like El Salvador President Nayib Bukele, who said the Central American country had acquired an additional 150 bitcoins after the digital currency’s value slumped again, enlarging his bet on the cryptocurrency.
In September El Salvador, became the world’s first nation to adopt bitcoin as legal tender, a move that generated global media attention but also attracted criticism from the opposition and foreign financial institutions.
Ether, the world’s second-largest cryptocurrency, was also hit on Saturday. It tumbled 3.1% on Monday however to $4,070 versus its Nov. 10 high of $4,868.
Bitcoin has been widely touted as an inflation hedge like gold and has closely tracked inflation expectations over the past 18 months. The U.S. 10-year breakeven rate, which represents how the market foresees long-term price pressures, has eased to 2.43% from 2.76% in the past two weeks, while money markets have brought forward the timing of the first Fed rate hike to mid-2022.
Analysts said the drop in bitcoin is a sign that the biggest cryptocurrency remains closely correlated to other parts of the market, especially as more institutions boost their exposure.