Why Bitcoin and Related Stocks Plunged This Weekend

Bitcoin (CRYPTO: BTC) took a steep price cut over the weekend. As measured from Friday's market close, the cryptocurrency's price was down 8.9% by 10:45 a.m. on Monday morning. The iShares Bitcoin Trust ETF (NASDAQ: IBIT) fell 8.4% over the same period.

The list of affected stocks is long, digging into every niche of the crypto market. The leading American digital currency trading exchange Coinbase Global (NASDAQ: COIN) dropped 10.4%, while large-scale Bitcoin miner MARA Holdings (NASDAQ: MARA) took a 12.9% price cut.

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The sectorwide market rout was chiefly inspired by two events:

• The Trump administration's tariff-centered approach to foreign policy is making the economy risky and unpredictable. Hence, high-risk investments such as Bitcoin-based stocks or funds are trading lower.
• Last week's announcement of a Strategic Bitcoin Reserve was supposed to light a fire under the Bitcoin market. Instead, investors found more questions than answers in the details. So the expected game changer turned out to be a dud, at least in the forum of public opinion.

Why these two things shook up the Bitcoin market today

A shaky economy has never been good news for Bitcoin investors. For example, the inflation crisis of 2022 drove the S&P 500 index as much as 21% lower, but the cryptocurrency dipped 59% in the same period.

Bitcoin investors weigh their prospective returns against the expected value of holding lower-risk investments such as gold or Treasury bills, and a risky financial environment tends to shift the market balance away from high-risk digital assets.

As for the Strategic Bitcoin Reserve, many market observers were waiting for a massive federal buying spree. Instead, the newly formed reserve (and the associated stockpile of other cryptocurrencies) will hold digital assets already owned by other federal agencies, since it has been instructed to keep any further purchases "budget neutral." This policy burst the fantasy of trillion-dollar Bitcoin buys under a federal umbrella.

How the news affected each Bitcoin-based investment

The iShares ETF is keeping pace with the digital token's actual price, as expected from an exchange-traded fund that manages about $50.1 billion of direct Bitcoin holdings. Coinbase's financial fortunes tend to move along with Bitcoin, too. Some of the exchange's investors might also have expected the company to earn business from managing the strategic reserve's digital wallets, but the company's name was not included in Trump's executive order.

As for MARA Holdings, it added more risk to the volatile Bitcoin idea by taking on $2.1 billion of net new debt in 2024 to acquire more mining equipment and buy more bitcoins on the open market. This company is making heavy bets on their long-term value gains, at the expense of much higher financial risks in the short term. Therefore, MARA's stock both rises and falls faster than the underlying digital asset. Today's painful price drop is another great example of this overarching trend.

Where will Bitcoin and friends go from here?

So, today's market action showed widespread price drops across Bitcoin and various related investments. Bearish market watchers could argue that the next crypto winter is starting early, without much of a price pop in the fourth cycle of Bitcoin halving events.

Bulls are drooling over the lower buy-in prices, calling this a correction of Strategic Bitcoin Reserve expectations that drove prices higher in November and December of 2024. Moreover, the budget-neutral buying policy might include selling some gold (and other federal assets) in order to finance some Bitcoin buys.

Only time will tell who's right and who's wrong. However, the global economy could use a digital upgrade, and I don't see any reasonable alternatives to Bitcoin in the long run. History might remember this period of collapsing Bitcoin prices as a fantastic buying window.

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Anders Bylund has positions in Bitcoin and Coinbase Global and has the following options: long March 2025 $19 calls on Mara and short March 2025 $19 puts on Mara. The Motley Fool has positions in and recommends Bitcoin and Coinbase Global. The Motley Fool has a disclosure policy.