Bitcoin prices took a tumble today, falling more than 6% in less than 12 hours, as the broader asset markets suffered widespread losses.
After experiencing this drop, is the world’s most prominent digital currency in a good position to experience a recovery?
The cryptocurrency fell roughly 6.1% overnight, declining to an intra-day low of $10,322.59 at roughly 10:30 a.m. EDT, CoinDesk figures show. It rose slightly after this, but has not traded much higher than $10,500 since.
Stocks also tumbled, with the S&P 500 Index and Dow Jones Industrial Average closing the day roughly 1.2% and 1.8% lower, respectively, according to Google Finance.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
When explaining these latest developments, several analysts pointed to risk-off trading taking place now that Supreme Court justice Ruth Bader Ginsburg passed away and the U.S. federal election approaches.
“Uncertainty around the election and in the aftermath of Supreme Court Justice Ruth Bader Ginsburg’s death has caused a panic in equities markets,” said Guy Hirsch, managing director, head of US for eToro.
“When traditional assets nosedive as they have today, traders will often liquidate a broad cross-section of holdings while they try to cover liabilities, thus leading Bitcoin to drop even more sharply today than any of the major equity indices in the US,” he noted.
John Todaro, director of institutional research for TradeBlock, offered a similar perspective.
Investors were already trading in a risk-off manner, but they leaned even more heavily in that direction “following the death of Ruth Bader Ginsburg,” he stated.
“You are seeing this spread across markets, including in digital currencies,” said Todaro.
In spite of all this, Hirsch emphasized that political turmoil could cause the world’s most prominent digital currency to experience additional upside in the near future.
“Despite this drop, especially if uncertainty continues and markets become even more nervous about how the US election will play out, it would make sense for Bitcoin to see a significant recovery as equities continue to experience downward momentum.”
Joe DiPasquale, CEO of cryptocurrency hedge fund manager BitBull Capital, also spoke to these developments, stating that:
“While Bitcoin’s correlation with the S&P 500 grew notably in recent months, the digital asset space remains highly volatile and able to decouple from traditional assets equally fast.”
“Even if the initial trend for Bitcoin is to follow equities, it is unlikely to stay on the path as increasing uncertainty can fuel a flight to alternative assets.”
Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether and EOS.