Why iShares Bitcoin Trust ETF Was Tanking Today
Key Points
Its foundational asset wasn't doing well, to put it mildly.
The cryptoverse's new fear is a potential interest rate increase in Japan.
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Monday was, to put it mildly, not a good day to be invested in cryptocurrencies. By extension, this meant that many cryptocurrency stocks and exchange-traded funds (ETFs) were also flailing. One example of this was iShares Bitcoin Trust ETF (NASDAQ: IBIT), which fell by nearly 6% in price that trading session.
News from across the Pacific
Last week's brief crypto rally stalled early Sunday night, as investors became concerned that the Bank of Japan might hike interest rates. That country's central bank governor, Kazuo Ueda, said that the regulator will weigh the "pros and cons" of such a move at its next policy meeting, scheduled for Dec. 18 to 19. This was widely taken to mean that the Bank is now leaning more toward lifting rates.
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Crypto investors don't like rate hikes in any major market, as they tend to make conservative investments more attractive, and riskier assets -- like digital coins and tokens -- less appealing.
Japanese investors own significant amounts of Bitcoin in particular. According to reporting from Reuters, at the end of July, their collective holdings notched a new record of 5 trillion yen ($32 billion). That was a substantial (25%) increase over the previous month.
The Bitcoin blues
Bitcoin was trading at over $91,000 just before the Japanese news hit the headlines; as of this writing, it was thrashing around in the $85,000 range.
Although it's by far the most popular and impactful cryptocurrency on the scene, it remains very volatile and therefore susceptible to outside developments. If the Bank of Japan indeed cuts rates at its next meeting, yen-based investors will struggle, and the impact will be felt in Bitcoin and other cryptocurrencies.
While the reaction to the Japanese news feels a little overwrought, the increasing prospect of a rate cut there is a genuine concern. I'd steer away from Bitcoin and associated plays like iShares Bitcoin Trust for now.
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Eric Volkman has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and iShares Bitcoin Trust. The Motley Fool has a disclosure policy.
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