Why Bitcoin Was Slumping on Friday
Key Points
Investors sold out of benchmark bonds amid the growing possibility of interest rate hikes in the near future.
A top corporate "whale" announced a potentially chunky Bitcoin sell-off.
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The world's leading cryptocurrency didn't look like much of a leader as we headed into the weekend. From 4 p.m. ET on Friday, Bitcoin (CRYPTO: BTC) was sliding by nearly 3% in late afternoon trading. Action in the bond market was a key factor, as was a disclosure by one of the coin's most prominent bulls.
Strategic adjustments
The main culprit in the decline was bond yields (for those unfamiliar, bond prices and yields move in the opposite direction -- the lower the price, the higher the yield, and vice versa). These rose significantly on Friday due to aggressive sales activity by investors. This was due to the usual recent factors, particularly the continuing stalemate in the war with Iran and its effect on oil prices, which rose again.
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Investors are thinking that such developments fuel inflation, and therefore increase the likelihood of a Federal Reserve rate hike before long. And whenever so-called "safety" assets like government bonds see yield increases, they diminish demand for relatively risky assets like cryptocurrencies.
Compounding this, Strategy -- effectively the largest corporate Bitcoin treasury business -- indicated it might sell some of its holdings of the coin. In a regulatory filing on Friday, it said it has entered into negotiations with several investors of its 0% convertible senior notes on repurchasing those securities.
To facilitate these buys, Strategy said it anticipates funding them with available cash, secondary stock issuance, and/or the sale of some of its Bitcoin holdings.
War, what is it good for?
Strategy's filing doesn't explicitly pledge to sell Bitcoin to fund those convertible note repurchases. Still, the fact that it might do so is clearly spooking Bitcoin investors already sensitive to those movements in the bond market.
That being said, my feeling is that both sides realize the Iran war is unsustainable and damaging to their interests, and will find a way to resolve it before long. This should remove a significant source of pressure on the cryptocurrency, so perhaps the current price weakness offers a good opportunity to buy Bitcoin at something of a discount.
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Eric Volkman has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
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