Bitcoin drops after $400bln wiped off from crypto markets

The world's biggest cryptocurrency was down 3.7% to $47,585

Bitcoin dropped on Monday after a dramatic rout wiped more than $400 billion from crypto markets over the weekend.

The world's biggest cryptocurrency was down 3.7% to $47,585 on the Coinbase exchange as of 10:35 am GMT.

Bitcoin crashed to $42,000 Saturday from above $57,000 Friday, before bouncing back to trade just below $50,000 for most of Sunday.

As of Monday, the token was roughly 30% below its November record high of close to $69,000.

Ether, the second-biggest token, was down 6.4% at $3,951 Monday on Coinbase. It too crashed Saturday, dropping as low as $3,570 before bouncing back somewhat.

The weekend plunge wiped more than $400 billion from the global cryptocurrency space, with the total market value of all tokens dropping from above $2.6 trillion to below $2.2 trillion Monday, according to Coinmarketcap.

Crypto markets started tumbling Friday along with other risky assets such as tech and meme stocks.

A combination of worries, including the new Omicron coronavirus variant, growing chances that the Federal Reserve will tighten monetary policy, and mixed signals from the US economy, have unnerved investors.

Analysts said the crypto crash was exacerbated by the structure of the markets, where traders often use derivatives — contracts that let people bet on the direction of an asset without actually owning it — and borrowed money.

As prices started declining Friday, many exchanges began ‘liquidating’ traders' positions to ensure they had enough money on hand to cover losses, adding to the downward pressure in the market.

On Friday, over $2 billion in long positions across the global crypto market were liquidated, nearly $850 million of which were from bitcoin futures, according to Sean Farrell, head of digital asset strategy at Fundstrat.

Smaller tokens such as solana, binance coin and cardano were also lower Monday after slumping at the weekend.

Yet Farrell said that there is reason to believe that bitcoin consolidates around its current level before heading higher, given that traders are likely to be attracted by cheaper prices.