Crypto investors were sent into a frenzy on Thursday after Bitcoin (BTC), the world’s most valuable cryptocurrency, dropped nearly 9% within an hour. The downward spiral was sparked by news that SpaceX had dumped some of its Bitcoin holdings.
According to data provided by CoinMarketCap, BTC was trading at $26,327 on Friday – 5.1% below the previous day’s price and 16% below the highest level it attained this year in early July.
Crypto Investors in Limbo as SpaceX Sells Bitcoin
Last week, Wall Street Journal reported that SpaceX had written down the value of its Bitcoin holdings by a total of $373 million, which the company had bought in 2021 and 2022. The Elon Musk-owned spacecraft manufacturer also sold some of its crypto holdings to raise capital.
Since its formation, SpaceX has enjoyed a reputation as an important innovator in the aerospace industry. But recent reports suggesting that a significant portion of its shares are being divested has led to analysts and investors putting a layer of uncertainty over the company’s trajectory.
Elon Musk has long been a vocal proponent of Bitcoin and cryptocurrencies. In 2021, the billionaire entrepreneur announced that his electrical car company – Tesla – would accept BTC as a form of payment. Tesla also revealed that it was holding the digital asset in its balance sheet.
However, three months later, Musk scrapped plans to sell cars in exchange for Bitcoin, citing that the unsustainable nature of the crypto asset was creating a negative image for his companies.
Tesla also liquidated a portion of its BTC holdings to generate capital. As of today, Tesla and SpaceX are only left with 25% of the $1.5 billion worth of Bitcoin they had purchased initially.
According to James Butterfill, head of research at crypto investment group Coinsahres, the markets often react sharply to actions taken by Elon Musk. In a note to investors, he stated that if the historical trend was anything to be true, the latest revelation could “further dampen investor sentiment”.
WSJ’s report sparked a panicked reaction in the market which saw $1 billion worth of cryptocurrencies liquidated, with Bitcoin accounting for pretty much half of that loss. The sell-off also echoed in the traditional markets, causing stocks and bond prices to decline.
Historic U.S. Inflation Numbers Affecting Crypto and Traditional Markets the Same
This came after the Federal Reserve expressed concerns that inflation in the U.S. economy “remained unacceptably high”, leaving the door open for further interest rate hikes this year.
Last month, the central bank raised its benchmark interest rate on the dollar to its highest level in over two decades.
Regulatory Crackdown a Major Reason Behind Dried-up Crypto Market Activity
Butterfield also noted that the market was becoming susceptible to larger trades as it was being impacted by low trading volumes and decreased volatility. Liquidity and activity in the crypto markets have dried up, especially in 2023, due to regulators cracking down on illicit market activities and charging industry players.
In June, the U.S. Securities and Exchange Commission (SEC) sued Coinbase and Binance – the first and second-largest cryptocurrency exchanges in the world by trading volume, for violating federal market laws.
The financial watchdog alleges that both companies were acting as an exchange, broker, and clearing house without registering their activities or products with the federal authorities first.
The SEC even gave Binance and Coinbase an ultimatum with a list of 13 cryptocurrencies that had to be taken out of their respective platforms or face enforcement action.
Both companies denied the allegations and vowed to defend themselves in court.
At the time, Coinbase CEO Brian Armstrong warned lawmakers that a regulatory crackdown on crypto would only stifle innovation coming out of the United States, forcing big players in the sector to leave for other crypto-friendly jurisdictions.
While the SEC considers all cryptocurrencies except for Bitcoin and Ether (ETH) to be securities and demands need for the instruments to be regulated in the same way as traditional assets like stocks and bonds, the industry is urging authorities to create bespoke rules and regulations for the new type of digital assets.
Coinbase Granted License to Sell Crypto Futures Derivatives in the U.S.
Last week, Coinbase was given the go-ahead to operate as a Futures Commission Merchant (FCM). Meaning the crypto exchange could now offer crypto futures derivatives to its U.S. clients.
Derivatives account for about 75% of all global crypto trades. The news came as a big blow to the SEC, which was waiting to pounce on the company at any chance it got.
At the time of writing, Bitcoin (BTC) is trading at $26,076.55 – down over 11% since last week.