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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New research suggests spending 40 percent of household income on loan repayments is the new normal
Requiring more than 30 percent of household income to service a home loan has long been considered the benchmark for ‘housing stress’. Yet research shows it is becoming the new normal. The 2024 ANZ CoreLogic Housing Affordability Report reveals home loans on only 17 percent of homes are ‘serviceable’ if serviceability is limited to 30 percent of the median national household income.
Based on 40 percent of household income, just 37 percent of properties would be serviceable on a mortgage covering 80 percent of the purchase price. ANZ CoreLogic suggest 40 may be the new 30 when it comes to home loan serviceability. “Looking ahead, there is little prospect for the mortgage serviceability indicator to move back into the 30 percent range any time soon,” says the report.
“This is because the cash rate is not expected to be cut until late 2024, and home values have continued to rise, even amid relatively high interest rate settings.” ANZ CoreLogic estimate that home loan rates would have to fall to about 4.7 percent to bring serviceability under 40 percent.
CoreLogic has broken down the actual household income required to service a home loan on a 6.27 percent interest rate for an 80 percent loan based on current median house and unit values in each capital city. As expected, affordability is worst in the most expensive property market, Sydney.
Sydney
Sydney’s median house price is $1,414,229 and the median unit price is $839,344.
Based on 40 percent serviceability, households need a total income of $211,456 to afford a home loan for a house and $125,499 for a unit. The city’s actual median household income is $120,554.
Melbourne
Melbourne’s median house price is $935,049 and the median apartment price is $612,906.
Based on 40 percent serviceability, households need a total income of $139,809 to afford a home loan for a house and $91,642 for a unit. The city’s actual median household income is $110,324.
Brisbane
Brisbane’s median house price is $909,988 and the median unit price is $587,793.
Based on 40 percent serviceability, households need a total income of $136,062 to afford a home loan for a house and $87,887 for a unit. The city’s actual median household income is $107,243.
Adelaide
Adelaide’s median house price is $785,971 and the median apartment price is $504,799.
Based on 40 percent serviceability, households need a total income of $117,519 to afford a home loan for a house and $75,478 for a unit. The city’s actual median household income is $89,806.
Perth
Perth’s median house price is $735,276 and the median unit price is $495,360.
Based on 40 percent serviceability, households need a total income of $109,939 to afford a home loan for a house and $74,066 for a unit. The city’s actual median household income is $108,057.
Hobart
Hobart’s median house price is $692,951 and the median apartment price is $522,258.
Based on 40 percent serviceability, households need a total income of $103,610 to afford a home loan for a house and $78,088 for a unit. The city’s actual median household income is $89,515.
Darwin
Darwin’s median house price is $573,498 and the median unit price is $367,716.
Based on 40 percent serviceability, households need a total income of $85,750 to afford a home loan for a house and $54,981 for a unit. The city’s actual median household income is $126,193.
Canberra
Canberra’s median house price is $964,136 and the median apartment price is $585,057.
Based on 40 percent serviceability, households need a total income of $144,158 to afford a home loan for a house and $87,478 for a unit. The city’s actual median household income is $137,760.
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