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Bitcoin Plunges. Here’s Why.

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Bitcoin has been on a slide for about a month.

Rutmer Visser/Dreamstime

The price of Bitcoin plummeted Saturday, building on losses that started a month ago and gathered steam this week after the Federal Reserve made clear that monetary support for markets is going away—soon.  

Cryptocurrency’s biggest player has fallen about 29% to $48,100 a coin since Nov. 8, when the price hit an all-time high. Most other speculative assets, including small-cap growth stocks, started to slide at the same time.

Early Saturday, the Bitcoin selling picked up, dropping more than 20% before clawing back some losses. At one point, the crypto lost roughly $10,000 in an hour, according to CoinDesk, a crypto news website. The price of Ether also fell and is down 16% since Nov. 8. 

This week’s losses seem tied to the latest Covid-19 variant, Omicron, and comments by Fed Chair Jerome Powell. On Tuesday, Powell signaled the central bank would move faster to end its pandemic-era bond-buying program.

The move would mean less money flowing into bonds, which would lower bond prices and lift their yields. And higher yields on safe, long-term bonds makes the most speculative assets—the long-term hopes of investors—less attractive to own. The stock market pulled back this week, too.  

For Bitcoin, there is already buying interest because of its drawdown. The president of El Salvador, Nayib Bukele, announced his country had “bought the dip” at a price just over $48,000.  

Volatility doesn’t surprise Bitcoin investors. The currency is up 63% year to date, but has lost just over half of its value from April to its July bottom. From that low, it more than doubled before topping out Nov. 8.

So buying the dip may feel good in the moment, but Bitcoin investors won’t forget the correction from December 2017 to December 2018.

Beware, especially if the Fed tightens policy rapidly.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

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