Bitcoin (BTC) falls below $36,000 amid broader market sell-off

Bitcoin broke below a key support level on Friday after a large US stock sell-off on Thursday spooked the cryptocurrency market and caused Bitcoin to drop around 10%.

Bitcoin was down less than 1% on Friday at $35,944.12, according to Coin Metrics. Ether fell 1.2% to $2,683.96.

The moves follow a painful day on Wall Street in which the blue-chip Dow Jones Industrial Average lost more than 1,000 points on Thursday and the tech-heavy Nasdaq fell 5%. Both losses marked the worst single-day declines since 2020 and followed big rallies in the previous session. The Dow Jones and Nasdaq fell again on Friday.

Bitcoin, whose price action remains highly correlated to stock market movements, has traded in a tight range all year as it struggles to recapture its late-2021 highs amid the market sell-off.

“That correlation will break down over time, you’ve already seen the beta version of the breakdown, that is [if] Nasdaq down 3%, crypto isn’t down 9% like it would have last year,” Michael Novogratz, CEO of Galaxy Digital, told CNBC’s “Squawk Box Friday.” “But I do think there’s going to be more pain from come”.

The rise in interest rates and the tightening of monetary policy have raised fears that the US economy could enter a recession. On Wednesday, the US Federal Reserve raised its benchmark interest rate by half a percentage point, as expected.

The stock market rallied in the immediate aftermath, amid comments from Fed Chairman Jerome Powell, who said a larger 75 basis point rate hike is currently not under consideration. However, by Thursday, investors mentally braced themselves for further tightening this year and erased all gains from the Fed’s rally.

“What’s different from 2008, different from 2001, different from the COVID crisis, is that the cavalry is not here. There’s not a giant injection of liquidity to create the V-shape, we’re going to go down and then we’re going to work until a new story pops up and then take off again,” Novogratz said.

“It’s not going to be as nice to dive in and buy the low price,” he added. “If you did that post-Covid, you looked like a hero eight weeks later. There aren’t many hero trades.”

Despite the fear and uncertainty in the market, the interest of institutions and long-term holders in cryptocurrencies remains strong.

“It’s amazing how much institutional capital is starting to line up,” Novogratz said. “BlackRock, Blackstone, Citadel, Apollo are building major crypto efforts, so it’s completely intuitive to me that there’s a backing somewhere in crypto.”

The amount of bitcoin supply that hasn’t moved in at least a year has reached an all-time high, according to Will Clemente, principal insights analyst at Blockware Solutions. He also said that the supply of long-term starters has also increased, even though their cost base has decreased. That indicates a transfer of supply from major buyers to long-term incumbents.

“With macro in the driver’s seat, fundamental analysis of bitcoin, like on-chain analysis, has carried less weight in our market outlook currently,” he said. “However, with that in mind, below the surface, fundamental investors have been sitting on it.”

Bitcoin lost a key level when it fell below $37,500, which could signal a move lower in the coming days, according to Vijay Ayyar, vice president of international and corporate development at crypto exchange Luno. He said that the next stop is $30,000, but if Bitcoin doesn’t hold there, it could drop to $25,000.

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