Bitcoin’s Plunge Sparks Wider Selloff
What to know about the fallout.
What to know about the fallout.
Bitcoin plunged to its lowest level since February on Wednesday, hitting a low of $30,200, down by more than half from an all-time high of $64,829 it reached just last month.
Ether, the second most valuable cryptocurrency, was down 21% as well on Wednesday.
The fallout was hitting stocks that have ridden the crypto boom. Square (ticker: SQ) dropped 4% and PayPal Holdings (PYPL) was off 1.5%. Companies with even more of their business models tied to the price of cryptocurrencies dropped even more precipitously, with crypto exchange Coinbase Global (COIN) falling 8% and business software firm MicroStrategy (MSTR), which has bought billions worth of Bitcoin, down 11%.
MicroStrategy’s CEO MIchael Saylor, among the most important evangelists for crypto had a short message on Twitter: “I’m not selling.”
Some crypto users couldn’t sell even if they wanted to. Coinbase users complained about trouble accessing the app. The company said “some features may not be functioning completely normal” and it is investigating.
Bitcoin had recovered to about $36,000 by 10:45 a.m. Eastern time, still down 19% in the past 24 hours. But even getting a definitive price was tricky. CoinDesk, among the most popular sites for crypto information, was down for part of the morning, and was showing different prices than coinmarketcap.com, another hub for data, and Coinbase. At about the same time, Coinbase was showing $36,998, while coinmarketcap showed $36,429—the kind of spread that used to happen in crypto but that had diminished in the past couple of years as the market became more liquid.
All of the gains Bitcoin accrued since Tesla (TSLA) got involved with the cryptocurrency have now been erased. And as with many things in crypto, it’s difficult to pinpoint the catalyst for the selloff.
Matt Hougan, chief investment officer of crypto fund provider Bitwise Asset Management, told Barron’s that the drop was caused by “short-term forced and panicked selling by retail investors who entered the market in the past year, spooked by a mix of bad news and misinformation, and turbocharged by the procyclical leverage that’s an inherent feature of the crypto market.”
Looking at patterns on the Bitcoin blockchain itself, he said he sees funds moving from overseas retail investors to institutions in the United States, “which is a good thing for the long-term. But in the short-term, volatility is a part of the market.”
The market has been dropping since Elon Musk began questioning Bitcoin’s negative environmental impacts about a week ago. One more recent catalyst may have been China’s decision to reiterate its ban on financial institutions facilitating crypto transactions.
In the crypto market, momentum can turn quickly and selloffs can accelerate as people try to lock in gains made in the latest bull market. Anyone who bought cryptocurrencies in 2020 is still showing a large paper profit, but maybe getting anxious that those gains won’t hold for long.
This “no doubt this will scare investors just as all pullbacks in all markets scare investors” Jim Paulsen, chief investment strategist at The Leuthold Group, wrote in an email to Barron’s. Paulsen is a more traditional investor who has warmed to Bitcoin in the past year. The selloff isn’t shaking his interest in crypto — he still thinks it’s worth allocating 1% or 2% of a portfolio into it. And he likes that the volatility makes it possible to rebalance frequently when prices go up and down.
One thing Paulsen is watching for is whether the selloff bleeds into the larger market. The S&P 500 was down 1.3% on Wednesday morning. “Note that the other 3 times crypto did this, the stock market suffered a correction or a bear market,” he wrote. “So part of the crypto story may depend on what the stock market does from here? Does it recover soon or is this a full-blown, longer-lasting correction for stocks?”
Saylor and other Bitcoin bulls have said that Bitcoin is an effective hedge against inflation, because the number of Bitcoins is capped at 21 million, theoretically making it impervious to the “money-printing” common with fiat currencies. Prominent hedge-fund managers like Stanley Druckenmiller have bought Bitcoin under that premise, and some analysts have found that Bitcoin has been stealing gold’s thunder.
But as inflation fears grow in the United States, there is evidence that institutional investors are returning to their familiar inflation hedge.
Investors have been pulling money out of Bitcoin futures and funds and putting more of it into gold, according to a new analysis by J.P. Morgan strategist Nikolaos Panigirtzoglou. That’s a shift from the prior two quarters, he wrote. On Wednesday, the spot price of gold was up 0.8% to $1,883.20 per ounce.
Reprinted by permission of Barron’s. Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: May 19, 2021.
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A sharp rebound in tourism in Europe’s sunbelt powers its economic rebound as core manufacturing centres struggle to recover
Europe’s economy has a north-south divide—and now it’s the poorer south that is powering the region’s return to growth.
Southern Europe, which for decades has had lower growth, productivity and wealth than the north, powered an upside-down recovery on the continent at the start of the year. Buoyant tourism revenue around the Mediterranean helped to offset sluggishness in Europe’s manufacturing heartlands.
The south’s transformation from laggard into growth engine reflects both a rapid rebound in visitor numbers from the collapse during the Covid-19 pandemic and a series of blows the continent’s large manufacturing sector has suffered, from surging energy prices to trade conflicts.
Now growth in the south is more than offsetting the north’s manufacturing malaise: As a whole, the eurozone economy grew at an annualised rate of 1.3% in the first quarter, ending nearly 18 months of economic stagnation in a sign that the currency area is recovering from the damage done by Russia’s invasion of Ukraine.
It was the eurozone’s strongest performance since the third quarter of 2022, and approached the U.S. economy’s 1.6% first-quarter growth rate, which was a slowdown from a racy pace of 3.4% at the end of last year.
In the 2010s, Germany helped to drag the continent out of its debt crisis thanks to strong exports of cars and capital goods. Between 2021 and 2023, Italy, Spain, Greece and Portugal contributed between a quarter and half of the European Union’s annual growth, according to a report last year by French credit insurer Coface —a trend now confirmed and amplified in the latest data.
In the first quarter, Spain was the fastest-growing of the big eurozone economies. It and Portugal recorded growth of 0.7% in the three months through the end of March from the previous quarter, while Italy’s economy grew by 0.3%. France and Germany both grew by 0.2%, the latter rebounding from a 0.5% quarter-on-quarter contraction at the end of last year.
This means Germany’s economy has grown by 0.3% in total since the end of 2019, compared with 8.7% for the U.S., 4.6% for Italy and 2.2% for France, according to UniCredit data.
In Spain, strong growth “seems to have been entirely due to strong tourism numbers,” said Jack Allen-Reynolds, an economist with Capital Economics. Tourism accounts for around 10% of the economies of Spain, Italy, Greece and Portugal.
The euro rose by about a quarter-cent against the dollar, to $1.0725, after the latest growth and inflation data were published.
The recovery comes as the European Central Bank signals it is preparing to reduce interest rates in June after a historic run of increases since mid-2022 that took it the key rate to 4%. Inflation in the eurozone remained at 2.4% in April, while underlying inflation cooled slightly, from 2.9% to 2.7%, according to separate data published Tuesday.
“The ECB hawks will point to the strong GDP number as [an] argument that ECB can take its rates lower gradually,” said Kamil Kovar, senior economist at Moody’s Analytics.
The eurozone economy has flatlined since late 2022 as Russia’s attack on its neighbor sent food and energy prices soaring in Europe and sapped business and household confidence. Gross domestic product fell in both the third and fourth quarters of last year, meeting a definition of recession widely used in Europe, but not in the U.S.
Southern Europe is one of only a handful of regions where international tourist arrivals returned to pre pandemic levels last year, according to United Nations data. Tourism revenue across the EU was one-quarter higher in the three months through the end of last June than in the same period in 2019, according to Coface data.
The recovery in international tourism was “notably driven by the arrival of many Americans who…were able to take advantage of favorable exchange rates,” Coface analysts wrote. “On the other hand, the end of the zero-Covid policy in China has initiated a gradual return of Chinese tourists, although remaining below 2019 levels.”
In Portugal, the number of foreign tourists hit a record of more than 18 million last year, up 11% compared with the prepandemic year of 2019, official data showed in January. American tourists in particular have returned to Europe in force.
Tourist numbers in Asia Pacific and the Americas continued to lag 2019 levels by 35% and 10% last year, respectively, the data show.
It is unclear how much further the tourism boom can run, but economists expect the region’s economic recovery to strengthen later this year as cooling inflation boosts household spending power and lower energy costs aid factory output.
Recent surveys point to an improved outlook for growth. Consumer confidence has risen to its highest level in two years, and a leading business-sentiment index has shown steady improvement from the start of 2024.
“We think that the combination of a robust labor market, comparatively strong wage hikes and lower inflation compared with last year will finally lead to a moderate recovery in consumer spending in the next few quarters,” said Andreas Rees , an economist with UniCredit in Frankfurt.
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