Bitcoin Falls to Half Its Peak as Investors Shun Risk

It wasn’t immediately clear what had triggered the decline, but the cryptocurrency’s market tumble over the weekend echoed the broader stock market’s decline last week as investors moved away from riskier assets.

Bitcoin, the largest cryptocurrency, hit a peak price of $67,802.30 in November 2021. Later Sunday, it made up some ground, to around $34,600.

The Federal Reserve’s announcement Wednesday that it was raising interest rates by a half point, the largest hike since 2000 with additional increases expected this summer, sent the Dow Jones Industrial Average on Thursday down 1,063 points, or 3.1%. The S&P 500 dropped 3.6%, and the Nasdaq Composite fell 5%. 

As part of its efforts to fight high inflation, the Fed is also starting to wind down its $9 trillion asset portfolio but has ruled out raising interest rates by a more aggressive 0.75 percent.

At the same time, “risk assets” such as tech stocks and cryptos have been hurt because bond yields keep rising. 

The yield on the benchmark 10-year U.S. Treasury note touched 3.15% on Friday, near its highest level in four years. Higher Treasury yields reduce the extra return relative to bonds that traders expect from taking riskier bets.

Last week, software company MicroStrategy’s Chief Financial Officer Phong Le said during its first-quarter earnings call that it would face a margin call if Bitcoin’s price drops to $21,000. 

In March, MicroStrategy took out a $205 million Bitcoin-collateralized loan with Silvergate Bank to purchase more Bitcoin, and owned $5.9 billion of Bitcoin at the end of March.

MicroStrategy took out the loan at a 25% loan-to-value, and a 50% loan-to-value “or around $21,000” would trigger a margin call.

The company could contribute more Bitcoin to the collateral package, so it never gets to 50%, “so we don’t ever get into a situation of a margin call,” Le said, according to a transcript of the conference call.

MicroStrategy stock is down 62% since Bitcoin’s price peaked in November, and is down 46% year-to-date.

The price of Ether, the second-largest digital asset, dropped 6.8% to $2,491 on Sunday. That is after Wednesday’s 6% gain to nearly $3,000, its best daily performance since February.

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