The financial markets are a sea of red on Friday as worries over a new coronavirus variant appear to have zapped risk appetite.
While bitcoin is trading 6.7% lower on the day at about $55,000, the S&P 500 futures are nursing a 2.3% loss. The MSCI Asia-Pacific index has slipped 1.8%, and the commodities complex is bleeding, with oil down over 2% on both sides of the Atlantic. Meanwhile, anti-risk assets like the Japanese yen and U.S. Treasuries are gaining ground.
The classic risk-off action comes in the wake of reports of a new coronavirus variant detected in Botswana, South Africa, and Hong Kong, which may be vaccine-resistant. If these fears come true, many nations may have to reintroduce economically painful lockdown restrictions.
“There’s a lot we don’t understand about this variant,” Richard Lessells, an infectious disease physician at the University of KwaZulu-Natal in Durban, South Africa, told the science journal Nature. “The mutation profile gives us concern, but now we need to do the work to understand the significance of this variant and what it means for the response to the pandemic.”
Bitcoin’s decline amid risk aversion in traditional markets suggests the cryptocurrency is not viewed as a safe haven.
Lockdowns, if any, would perhaps worsen supply chain disruptions, pushing inflation higher – a positive for bitcoin, given it is widely perceived as a store-of-value asset. According to JPMorgan, bitcoin’s October rally mainly resulted from the spike in inflation expectations and the cryptocurrency’s appeal as a hedge against inflation.
That said, the U.S. consumer price index (CPI) is already at a three-decade high. A further rise in CPI may see the U.S. Federal Reserve prioritize inflation control over growth by unwinding stimulus faster. That could lead to asset price deflation.
Bitcoin, which remains vulnerable to Fed tightening, fell sharply on Nov. 10 after the higher-than-expected U.S. CPI bolstered fears of an early interest rate hike by the Fed.
Minutes from the Fed’s November meeting released on Wednesday shows that officials would be willing to raise interest rates sooner than expected.
The cryptocurrency was better bid on Thursday and appeared set to cross the resistance at $60,070. That would have confirmed a double bottom breakout on the four-hour chart. Renewed COVID fears, however, have played spoilsport.
UPDATE (Nov. 26, 09:16 UTC): Updates bitcoin price, market movements in headline and story.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.