Bitcoin plunges over 20% in another sign of global anxiety

Bitcoin plunged along with other cryptocurrencies on Saturday, in another indication of the risk aversion sweeping across financial markets.

The largest digital token fell as low as $42,296 before paring some of the tumble. It was trading at about $48,300 as of 10:31 a.m. in New York on Saturday, a drop of about 10%. The token has now declined more than 20% from the all-time high of more than $69,000 seen on Nov. 10.

Ether, the second-largest token, fell as much as 17.4% before trimming the retreat to about 4%. The overall crypto sector has shed around a fifth of its value, sliding to $2.2 trillion, according to tracker CoinGecko.

It’s not unheard of for cryptocurrencies, which trade 24/7, to swing wildly on weekends. That’s owing to a few factors, including thinner trading volumes and a market structure that consists of hundreds of disconnected exchanges that in effect are their own islands of liquidity.

“As usual, since crypto traders deploy leverage it results in cascading sell orders and liquidations,” said Antoni Trenchev, cofounder of crypto lender Nexo. “We should find support around $40,000 to $42,000 and then rebound in line for a end-year rally. If that does not hold, we might revisit the July lows of $30,000 to $35,000.”

The swings in cryptocurrencies come amid a volatile period for financial markets. Spiking inflation is forcing central banks to tighten monetary policy, threatening to reduce the liquidity tailwind that lifted a wide range of assets.

“The decline was likely in part technically-driven, exacerbated by the derivatives market, and not helped by the downside momentum behind high-growth stocks on Friday, to which Bitcoin has been positively correlated,” wrote Katie Stockton, founder and managing partner of Fairlead Strategies, an independent research firm focused on technical analysis.

The omicron variant of the coronavirus has also led to risk aversion over concerns about what it might mean for global economic reopening.