After stock market selloff, bitcoin dips again

After the stock market selloff this week, investors were pulling back from riskier bets, as well as falling sharply Saturday.

The largest coin by market value plunged more than 20% to $42,000 at midnight Eastern Time on Saturday before bouncing back, according to data from CoinDesk. It was trading at $49,000 on Saturday night, down about 9% in 24 hours.

The declines were widespread across the criptouniverse. Other widely traded cryptocurrencies, including Solana, Doge coin and Shiba Inu coin, lost more than a fifth of their value.

The second-largest criptocurrency, Ether, fell by more than 15%, but had only a 4% decline by Saturday evening.

Cryptocurrencies are notoriously volatile and often plunge for mysterious reasons. There was disquiet in the stock market over the new Omicron variant of Covid 19 and the Federal Reserve's response to inflation.

The unwinding of heavily leveraged criptocurrency derivatives is another factor that could cause the bitcoin selloff, said Noelle Acheson, head of market insights at Genesis Global Trading. She pointed out a large sell order that might have triggered margin calls and liquidations for investors.

Leveraged trading of cryptocurrencies has become a big business for exchanges such as Binance, the world's largest. Future contracts are used by traders to bet on the rise or fall of a particular coin. They are allowed to make oversize bets with little money to make returns more attractive. Margin calls force investors to liquidate if the price of cryptocurrencies falls too.

The price of bitcoins was seensawed later Saturday after El Salvadoran President Nayib Bukele, who adopted bitcoin as a national currency in September, said in a tweet that the country had bought 150 coins for an average of $48,670 each. El Salvadoran just bought the dip! He said something. He later wrote that the country had missed the f ing bottom by 7 minutes, followed by a laughing emoji.

It isn't the first time that El Salvadoran has jumped into the market after a big price fall. The interventions have turned the tiny impoverished nation into an informal central bank that props up the digital currency, similar to the way that mainstream central banks intervene in foreign exchange markets to keep currencies stable.

Cryptocurrencies move much more than stocks or government-issued currencies. The week was a rollercoaster ride for the stock market, with investors uncertain about the course of the epidemic and inflation. Travel was starting to bounce back after the Omicron variant triggered new restrictions around the world. Scientists are trying to determine how effective current vaccines will be against Omicron.

There was heightened worry about the Federal Reserve's inflation due to fears of another economic slowdown. Chairman Jerome Powell said the central bank was ready to pull back its easy-money policies quicker than previously expected, opening the door to raising interest rates in the first half of next year.

Higher rates make holding speculative assets less attractive. When the Federal Reserve raised rates in 2017 and 2018, the price of bitcoins fell dramatically, according to a spokesman for the company, referred to as a winter of digital currency. During the flu, the coin took off again. On 9 November, Bitcoin hit an all-time high of $67,802.