What’s really behind the crypto crash

‘Market turmoil’ looks set as the theme of the week, so let’s take a close look at a trading arena more prone to mayhem than most. Why has bitcoin lost half its value since November?

First, I could make a case that since crypto investment has become at least a small part of many mainstream portfolios, its prices tend to respond to the same signals that influence conventional share indices — rather than following fantasy flight paths of their own. So just as FTSE and Nasdaq investors are seriously rattled by the prospect of war in Ukraine on top of existing fears about interest-rate rises and tighter money, so crypto fans are also naturally nervous.

And when tech fanciers become sellers of stocks such as Netflix and Peloton (the maker of digitally connected exercise bikes), which led a sell-off of former ‘lockdown winners’ at the end of last week, so bitcoin holders — likely in many cases to be the very same people — are cashing out too. That applies especially to the sort of higher-risk punters who face ‘margin calls’ when their bets turn bad.

Added to all this, I could point out that bitcoin trading and ‘mining’ (which consumes insane quantities of electricity to power the computers that generate new bitcoin units) is already banned in China; that Russia looks likely to follow suit soon; and that President Erdogan of Turkey, whose citizens have gone crazy for crypto, says his government is ‘at war’ with the whole concept. Only our old friend President Nayib Bukele of El Salvador is swimming the other way. Having recently declared bitcoin to be legal tender, he invested another $15 million of state funds last week as the price continued to plunge. His impoverished country ‘is now well underwater on its purchases’, reports ForexLive.