Bitcoin Dives Again in Worst Week for 3 Years. Why This Crypto ‘Doom Loop’ Will Continue.

The price of Bitcoin has plummeted this month. (VERNON YUEN/AFP via Getty Images)

Key Points

• Bitcoin dropped 4.5% to $82,440 in early trading, marking a 9.6% decrease over the past 24 hours and a 34% decline from its October all-time high.
• Other cryptocurrencies also experienced significant declines, with Ethereum falling 9.7%, Solana 11%, and XRP 10% over the last 24 hours.
• The crypto market downturn is attributed to investor expectations that the Federal Reserve will not cut interest rates and a rotation out of risk assets.

The price of Bitcoin was dropping again on Friday, as the recent cryptocurrency selloff deepened. There could be more pain ahead.

“From a demand perspective it appears there is an early, yet growing, sense of concern that could evolve into full-on panic if the selling pressure continues to intensify further than it already has, as lower prices would prompt more selling in a doom loop of sorts,” analysts at the financial research firm Sevens Report wrote on Friday.

The world’s largest crypto slumped 4.5% to $82,440 in early trading and was down 9.6% over the past 24 hours. It’s trading 34% off the record high of $126,272 it hit in early October. Bitcoin is on pace for its worst week since November 2022, when the collapse of crypto exchange FTX sparked a brutal selloff.

Other digital assets weren’t doing any better. Ethereum dropped 9.7%, Solana fell 11%, and XRP tumbled 10% over the past 24 hours.

Two factors have driven the recent plunge in crypto prices.

First, investors are betting the Federal Reserve won’t cut interest rates next month, which would make Bitcoin and its peers less appealing relative to interest-bearing investments such as bonds and savings accounts. Second, the market has decided this is a good time to rotate out of risk assets, amid questions about lofty artificial-intelligence valuations.

There could be sizable price swings next week, given that volumes are likely to be thin from Thursday onward due to Thanksgiving. That means it wouldn’t take much pressure for Bitcoin to continue dropping.

“Liquidity will likely dry up across markets this week and heading into the holiday season,” Adam Morgan McCarthy, head of research at the crypto data provider Kaiko, told Barron’s. “This could exacerbate moves if investors continue to par positions before the holidays and liquidity dries up more.”

Write to George Glover at george.glover@dowjones.com