Bitcoin Just Had Its Worst Week in Months. Why Cryptos and Stocks Went in Different Directions Today.

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

Key Points

• Bitcoin closed down 2.1% Friday, and is down more than 10% for the week.
• Other cryptocurrencies also experienced significant declines, with Ethereum falling 3.7%, Solana 4.8%, and XRP 3.3% over the 24 hours ending at 4 p.m. Friday.
• 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.

Cryptocurrencies missed out on the broader market rally Friday. While the tech-heavy Nasdaq shook off its Thursday slump, crypto investors aren’t ready to take on more risk.

Bitcoin fell 2.1% to $84,535.40 on Friday for the 24 hours ending at 4 p.m. It’s down 10.3% for the week. That’s its worst performance since the last week in February, when it fell 11.4%.

In contrast, the three major stock indexes all rose about 1% Friday.

The simple explanation for Friday’s disconnect is that Bitcoin has dropped more than 30% since its Oct. 6 peak, leaving many holders underwater on some of their purchases. Because crypto is often held in margin accounts, some likely had to sell to cover their losses, pushing the price down even further.

The broader stock market, while volatile, is still riding relatively high. The S&P 500 is down just 4% from its late October peak of around 6890.

Created with Highcharts 9.0.1Bitcoin priceSource: CoinDeskNote: CoinDesk index (XBX)As of Nov. 21

Created with Highcharts 9.0.12025Nov.70,00080,00090,000100,000110,000120,000$130,000

There could be more pain ahead for Bitcoin. “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.

Other digital assets weren’t doing any better. Ethereum dropped 3.7%, Solana fell 4.8%, and XRP tumbled 3.3%.

Several factors have driven the recent plunge in crypto prices.

First, investors are unsure if the Federal Reserve will cut interest rates next month. If the central bank holds borrowing costs steady, that 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.

A third issue is that many investors bought Bitcoin at around $90,000. With it now trading below that, they may be hesitant to keep buying while their investments are underwater, especially if they borrowed money to buy it and are now facing margin calls. That is when brokers demand more cash from investors to cover the loans. That, in turn, can lead to forced selling, which puts additional negative pressure on the asset’s price.

Don’t count on the crash stopping just here. 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 Anita Hamilton at anita.hamilton@barrons.com and George Glover at george.glover@dowjones.com