Why Is Bitcoin Falling? How Russia Sent the Crypto Tumbling Below $40,000.

Cryptocurrency markets were in turmoil on Friday as Russia watched the bitcoin ban, while US stock sales continued to plague cryptospace.

Bitcoin fell 10% to $ 38,900, fell well below the psychologically important level of $ 40,000 and hit six-month lows.

In total, the crypt market has lost $ 200 billion in market value over the last 24 hours, down 11% to $ 1.8 trillion.

Russia can add to the fear that seems to be clenching the cryptocurrencies. The country’s central bank has issued a sharp report on cryptocurrencies, including a potential ban on mining and trading. Russia accounts for about 10% of the world’s bitcoin mining capacity, making it the main network transaction processing center.

Russia’s central bank said cryptocurrencies were used for illegal activities and posed a risk to financial stability and monetary policy.

“The potential risks to financial stability associated with cryptocurrencies are much higher for emerging markets, including Russia,” the central bank said.

Bitcoin and other digital assets are popular in Russia. The central bank said the value of cryptotransactions of citizens is estimated at $ 5 billion a year. However, the ownership or possession of bitcoins and cryptocurrencies by private Russian citizens may still be permitted.

Russia can follow the Chinese path in a vigorous fight against bitcoin; Last year, Beijing banned bitcoin mining and largely banned its citizens’ trade. Both countries are also facing energy shortages and rising electricity prices, making bitcoin mining a target for both financial and energy regulators. Russia’s central bank said bitcoin mining “creates unproductive electricity consumption.”

The crypto markets did not slip at first after news from Russia. The sell-off may have been triggered by other factors, including Thursday’s late jump in US stock markets.

While bitcoin and other digital assets should theoretically be traded independently of major financial markets, they appear to be correlated with other high-growth risk-sensitive investments, such as a number of technology stocks.

and

The stock spill – triggered by the Federal Reserve’s tighter monetary policy – may not be over for cryptocurrencies.

The futures market suggests that more investors are betting on the fall of bitcoin. Perpetual bitcoin futures contracts turned to more short positions – bets on declines – than bets on price gains, Fundstrat Global Advisors said in a note on Friday.

Breaking the bitcoin below the level of around $ 39,500 is also a bearish sign, says Fundstrat, by extending a two-month descending pattern that could push the bitcoin to lows from last summer around $ 29,000. “It seems that the technical damage from this week will require a little more down before it stabilizes,” says Fundstrat.

Other technical analysts are also seeing further declines. The liquidation of bitcoins could increase due to margin challenges and forced liquidations on decentralized trading platforms, where bitcoins and other cryptocurrencies are concluded in “smart contracts” that automatically adjust to market prices. When prices collapse, contracts may automatically liquidate collateral or require additional collateral.

“Bears are winning against margin traders who are almost all underwater,” a report on DecenTrader said Friday. If bitcoin trades well below $ 38,000, the market could experience a “liquidation event” similar to the sharp sell-off last December 4th. This time, it could bring bitcoin down to $ 33,000.

Bitcoin may continue to be a “short-lived” market, says DecenTrader, until more buyers arrive amid oversold terms. “Bulls can avoid erasure,” says DecenTrader, “but we need to see evidence of the market in real fear before that happens.”

Write Daren Fonda at daren.fonda@barrons.com and Jack Denton at jack.denton@dowjones.com

.