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Bitcoin has been shaken out of its summer lull on fears that Elon Musk’s SpaceX had written down some of the value of its cryptocurrency holdings.
The flagship token was down 5.1 per cent on Friday, having fallen by nearly 8 per cent during an hour of frenzied trading late on Thursday, coinciding with a report in the Wall Street Journal that SpaceX had written down its bitcoin by $373mn in the past two years and had sold some coins.
Its sudden reversal echoed declines in global stock and bond prices this week as investors are forced to adjust their expectations that US interest rates will stay high, even as the economy remains robust.
The Federal Reserve lifted its benchmark rate to its highest level in 22 years last month and left the door open to further increases this year. In spite of moves in other assets, the price of bitcoin has remained within a tight trading range over the past two months.
Musk is regarded as one of the crypto market’s biggest cheerleaders and lifted the prices of alternative coins when he mentioned them on his X social media platform. His electric-car company Tesla briefly flirted with accepting payment in the cryptocurrency in 2021 and also ploughed $1.5bn of its own cash into the tokens.
But bitcoin registered a sharp reversal when Musk abandoned the plans three months later. Since then, the value of the carmaker’s own holdings has fluctuated. Tesla last year recorded $204mn in impairment losses related to its bitcoin holdings.
“History shows that the market often reacts sharply to Elon Musk’s actions, implying that this latest revelation could further dampen investor sentiment,” said James Butterfill, head of research at Coinshares, an investment group.
Low trading volumes and decreased volatility also had an impact, he said, as it “made the market susceptible to larger trades”.
Liquidity and activity in crypto markets have dried up this year as US regulators have cracked down on illicit activity and charged some of the market’s biggest names, including Binance and Coinbase, with violating federal markets laws.
Illustrating the thin liquidity, yesterday it would have taken the sale of 463 bitcoins — worth about $12mn — to push the price of the coin down by one per cent of its prevailing market value, according to CCData, an industry information provider.
In March, when crypto markets were convulsed by the collapse of Silicon Valley Bank, it would have taken the sale of 856 bitcoins, then roughly equivalent to $17mn, to move the price of the token by more than 1 per cent.
In June the SEC filed lawsuits against Binance and Coinbase, claiming they had broken the law by selling digital tokens to members of the public without filing the required registrations. The two companies have denied the allegations and vowed to defend themselves in court.
