Bitcoin Falls Into Bear Market as New COVID-19 Variant Spooks Markets

A representation of virtual currency Bitcoin and small toy figures are placed on a computer motherboard in this illustration taken on Jan. 7, 2021. Dado Ruvic/Reuters

Bitcoin enters bear market territory as the cryptocurrency fell eight percent in the last 24 hours to trade at $54,176, reaching its lowest level since the first week of October amidst a market rout over a new heavily-mutated variant of COVID-19 emerging from South Africa.

When an asset declines 20 percent or more, it effectively enters the bear market. Bitcoin reached an all-time high of approximately $69,000 in early November. Accompanying the world’s most prolific digital currency, Ethereum fell nine percent based on data from Bloomberg, along with many other digital currencies, including the Bloomberg Galaxy Crypto Index which declined four percent.

Other risk assets, like stocks and crude oil, also saw selloffs, driven by fears of a fourth wave in South Africa that could spread internationally. Haven assets like gold and U.S. Treasurys absorbed some of the outflows, driving up the spot gold price and pushing down bond yields.

“Here is a mutation variant of serious concern,” South African Health Minister Joe Phaahla said at a media briefing on Tuesday. “We were hopeful that we might have a longer break in between waves—possibly that it would hold off to late December or even next year January.”

The new variant carries a reproduction number of two, which means each infected individual affects two others. The European Union is considering canceling all flights coming in from the region. Other than South Africa where cases have been confirmed, the new variant, yet to be named, has been detected in neighboring Botswana, Israel, Belgium, and Hong Kong.

The UK and Netherlands have banned flights from South Africa, Botswana, Namibia, Zimbabwe, and other bordering countries. The current vaccines may not be effective for the novel variant, reports BBC.

“Bitcoin not providing much of a hedge,” Neil Wilson, an analyst at Markets.com, wrote in a note. Cryptocurrencies were considered by many investors to be a hedge against the general trends of financial markets, a “digital gold.” But, the price of real gold is holding steady, providing investors with a hedge against the recent volatility.

Bitcoin attained record highs after the first U.S. exchange-traded fund (etf) linked to Bitcoin futures launched last month. “Ironically, yesterday afternoon crypto markets were starting to look pretty optimistic with hopes of a Santa Claus rally,” Jonathan Cheesman, head of institutional sales at crypto exchange FTX, wrote in a note on Friday, reported Fortune. He said that it “will be a nervous weekend for sure.”

Other reasons cited for the crypto-fall are China’s continuing regulatory crackdowns and new requirements related to tax reporting for digital assets in the United States. Crypto-bulls are, however, holding on to the belief that more institutions will come to recognize digital currencies leading to mainstream acceptance and usage. Bitcoin is up more than 80 percent this year.

“This is a market reaction/correction within an uptrend,” said Vijay Ayyar, head of Asia-Pacific at Luno Pte., to Fortune. He added that 20 percent pullbacks are common in a Bitcoin uptrend, while drops to sub-$50,000 could be concerning.

Investors have increasingly turned to the safety of bonds. U.S. Treasury yields are moving down sharply.