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Why crypto is melting down and stocks keep falling
Bitcoin and stocks are in a bout of volatility — and investors say more turbulence could be in store.
US stocks closed lower Tuesday, extending a recent tumble. The Dow fell 499 points, or 1.07%. The S&P 500 fell 0.83%. The tech-heavy Nasdaq Composite slid 1.21%.
The S&P 500 closed lower for the fourth day in a row, marking its longest daily losing streak since August.
Just six weeks after notching a record high above $126,000, bitcoin has plummeted more than 26%. The cryptocurrency on Tuesday afternoon traded just below $93,000, erasing all of its gains for this year.
Bitcoin late Monday had dipped below $90,000 for the first time in seven months before paring some losses early Tuesday.
Investors in recent weeks have increasingly shunned risky assets like AI stocks and crypto. Not helping: uncertainty about whether the Federal Reserve will cut interest rates next month. The risk-off attitude is weighing on bitcoin, a highly speculative and volatile investment.
In Wall Street terms, bitcoin is in a bear market — when a price falls more than 20% from a recent peak. Bitcoin has shed more than $600 billion in market value during its tumble, according to CoinMarketCap data.
“Bitcoin’s pullback is part of a broader shift in risk sentiment,” said Haider Rafique, global managing partner at OKX, a crypto exchange.
After a strong six-month rally in stocks, nerves are mounting about expensive valuations and enormous spending plans by big tech companies. A wide range of tech and AI stocks were lower on Tuesday: Nvidia shares (NVDA) fell 2.81%. Amazon shares (AMZN) fell 4.43% and Microsoft shares (MSFT) fell 2.7%.
The tech-heavy Nasdaq is down 6.6% since hitting a record high late October and has shed roughly $2.6 trillion in market value during its slide.
Wall Street’s fear gauge, the VIX, jumped 10% on Tuesday. CNN’s Fear and Greed index hovered in “extreme fear” and slid to its lowest level since early April.
Adding to the pressure on bitcoin: Long-term investors may be closing their positions to lock in profits after meteoric gains in recent years.
“Bitcoin has struggled as a result of selling pressure from long-term holders taking profits but also uncertainty around Fed policy, the liquidity environment and other macro conditions,” said Gerry O’Shea, head of global market insights at Hashdex Asset Management.
Bitcoin has struggled to meaningfully recover since a flash crash on October 10 when President Donald Trump reignited his trade war with China. Some buyers and sellers have left the market since then, so there are fewer orders for bitcoin, leaving the price more susceptible to volatility, according to Peter Chung, head of Presto Research.
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