Member-only story
The Cryptocurrency Selloff Explained
Like the weather, the outlook can change quickly
I recently wrote about bitcoin’s risk and return. One of the take-aways was: “Bitcoin offers over-sized risks for the potential returns, with volatility that is orders of magnitude greater than with traditional investments.” Two weeks later — an eternity in crypto-investing — we can see that the volatility is there. Writing about bitcoin is like writing about the weather in an ever-changing climate — you can start writing about the thunderstorms and when you think you are done, the sun comes out, so depending on when you are reading this, the weather may have changed. Nonetheless, let’s take a quick look at what’s been happening to bitcoin compared with stocks and gold, and the reasons why prices have moved substantially in such a short period of time.
Bitcoin’s Swoon
We can see from the chart that stocks (as measured by the S&P 500 index) are up by about 2 percent since the beginning of April, having reached an all-time high on May 7th, then recently retreating. Gold has seen a steady increase, up over 9 percent. In contrast, bitcoin has lost more than a third of its…
