Bitcoin tumbles below $40,000 as US stocks slide, Russia proposes crypto ban

By Samuel Indyk

Investing.com – Bitcoin dropped below $40,000 for the first time since 10^th January and to its lowest level since August last year as weak market sentiment weighed on riskier assets.

There was no single reason for the extended sell-off but weakness in US stocks (in part due to Fed tightening), a technical break out of the recent range, and the prospect of a cryptocurrency ban in Russia have all weighed on cryptocurrencies.

Stock Weakness

There was no let-up for US equity markets on Thursday. Initially, stocks opened higher in the US with the Nasdaq 100 up as much as 2.0% but a late slide saw the tech-heavy index finish the session down over 1.3%.

There are question marks over the valuations of some stocks, most notably in the technology sector, as the Fed begins to tighten monetary policy and remove some of the emergency stimulus brought in at the start of the pandemic.

This week alone, the Nasdaq 100 is down around 5% with the S&P 500 down just under 4% and the Dow Jones Industrial Average down just over 3%.

Victoria Scholar, interactive investor’s Head of Investment, said the decline in US stocks is partly to blame for the cryptocurrency weakness.

“The negativity on Wall Street this week with the Nasdaq shedding nearly 5% is permeating into other risk assets including the crypto complex,” Scholar said. “A hawkish Fed trajectory, which aims to dampen price levels, is softening the appeal of inflation hedge assets.”

Russian Crypto Ban?

Another potential factor for the decline in Bitcoin and other major cryptocurrencies is news from Thursday that the Russian central bank had proposed a ban on the use and mining of cryptocurrencies.

The central bank cited threats to financial stability, citizens’ wellbeing, and its monetary policy sovereignty for the proposal.

However, Elizaveta Danilova, the central bank’s head of financial stability, said restrictions on owning cryptocurrencies are not envisaged.

According to the latest data from the Cambridge Bitcoin Electricity Consumption Index, Russia is the third-largest country for Bitcoin mining, behind the US and Kazakhstan. Russia accounted for 11.2% of the hashrate on the Bitcoin network according to the latest data. The hashrate is the amount of computing power used by machines for transactions and mining on the Bitcoin network.

Technical Breakout

The weakness in cryptocurrencies comes as Bitcoin broke out of its recent range to the downside. A clean break of $40,000 saw the cryptocurrency drop as low as $38,300 and take other major cryptocurrencies with it. Ethereum fell back below $3,000 (down 8.6%), while Cardano, Solana, and Avalanche all fell by over 9%.

Bitcoin traded around 44% below its all-time high hit in November and the overall cryptocurrency market has lost over $1 trillion in value since then, according to data from CoinMarketCap.