Bitcoin plunges below $26K amid heightened risk aversion

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Bitcoin’s price fell to under $26,000 to reach a two-month low as risk aversion weighed on the cryptocurrency market.

The price dropped by eight percent in 10 minutes, from $27,677 on August 17 at 9:30 p.m. UTC to $25,409, according to Coinmarketcap. Since then, the price has slightly recovered and currently hovers around $26,448. Its price dropped even lower at crypto exchange Bitfinex — hitting $24,715 before recovering above $26,000.

The recent plunge caused Bitcoin’s market capitalization to fall below $500 billion, reaching levels not seen since June 20. However, the cryptocurrency is still up 60 percent since the start of 2023, trading at around $16,550.

In the first quarter of 2023, Bitcoin surged 72 percent but has declined about nine percent since the end of March. Last year, the crypto token tumbled 64 percent amid a series of industry scandals and bankruptcies.

Bitcoin’s price had been relatively stable within a narrow range for months, with volatility at the lowest level since 2016. The recent drop followed a period of declining interest in the crypto market as investors had become more cautious about the risks associated with digital assets.

Analysts and investors predicted earlier this week that the resolution to the Grayscale’s spot Bitcoin ETF application would prompt volatility in the market. However, the token still trades in a narrow range throughout the week.

Speculations surrounding price drop

Some X (formerly Twitter) users speculate that the price drop was due to a Wall Street Journal report which revealed that Elon Musk’s SpaceX sold some or all of its Bitcoin holdings, estimated to be worth around $373 million. The price drop occurred approximately 2.5 hours after the Thursday report was published online.

SpaceX’s sale of its Bitcoin holdings followed a similar move by Tesla, Musk’s other company, which sold 75 percent of its reserves in the last quarter of 2021.

Josh Gilbert, a market analyst at investment firm eToro, told Cointelegraph that the market’s expectations on the macroeconomic situation might play a role in the drop. He said the market still priced in the possibility of further interest rate hikes by the U.S. Federal Reserve.

Meanwhile, CMC Markets analyst Tina Teng said the recent rise in government bond yields is the root cause. Teng explained that rising bond yields often indicate declining liquidity in the broader market.

Investors are moving their money into safer assets, such as government bonds and the U.S. dollar, as they anticipate higher interest rates. Higher interest rates typically make alternative investments, such as cryptocurrencies, less appealing.

“There aren’t enough good headlines coming out of crypto to get people excited.”

Michael Safai, managing partner at Dexterity Capital.

Implications for broader market

The decline in Bitcoin — the largest digital asset by market value prices — dragged down the broader crypto market. Ether, the world’s second-largest cryptocurrency, fell to $1,680, down about 6.6 percent in the past 24 hours.

Other major cryptocurrencies, such as Binance Coin (BNB), Cardano (ADA) and Solana (SOL), also saw significant losses, falling by more than six percent.

Ripple’s XRP token was hit the hardest. Its price has fallen by 16 percent in the past 24 hours, more than any other major cryptocurrency. The decline followed a federal judge’s decision to allow the SEC to partially appeal an earlier XRP ruling.