Bitcoin drops below $50,000 — El Salvador buys the dip

Yahoo Finance's David Hollerith discusses the decline of bitcoin stocks under $50k amid uncertainty over COVID-19.

Video transcript

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BRIAN CHEUNG: Welcome back to Yahoo Finance. Time for Crypto Corner. We don't need to remind our viewers about the big dip in Bitcoin this weekend. Take a look at that. It was about $57,000 headed into the weekend. Here we are about $48,000. So a lot of questions about why that happens.

Let's bring in Yahoo Finance's David Hollerith, who's been watching all the market action, I'm sure very busy weekend for you. David, I guess first question, why did that happen? And then secondly, did anyone buy that dip? I heard that El Salvador might have some people trying to get the price back up.

DAVID HOLLERITH: Yeah, Brian, as you mentioned, it was a very busy weekend for me. Some people consider it sort of a bloodbath for the cryptocurrency markets. Yeah, so late Friday night, early Saturday morning, we had a very significant drop in sort of what you're seeing similar in stocks. This was sort of, I guess, concerns over uncertainty with the Federal Reserve tightening monetary policy, in addition to the new COVID variant, watching that.

But, obviously, what sort of created such an exaggerated move was the drop driven by leverage from I guess what you would call expectations for Bitcoin hitting $100,000 by the year's end being dashed and sort of what's looking like you a less certain, less bullish market. So I think the main concern, Bitcoin's sort of retaken some of those gains. But you always have cryptocurrency investors, the die-hards sort of buying the dip every time it gets lower because they're sure it's going to come back.

So the president of El Salvador actually purchased 150 bitcoins on Saturday. And so right now as of today, Bitcoin is down 2%. So he is still in the red. It was about $7.3 billion on Saturday. Now it's looking to be a little bit lower by about $100,000. So we'll continue to watch that. But like the rest of the markets, it's sort of been an uneasy start to the week.

JULIE HYMAN: Yeah, most definitely. And we'll see how that trade turns out. I also want to ask you about, I know there's another story written, but as a follow-up on the action in Bitcoin, there was an interesting chart that Bloomberg brought up that looked at the correlation between Bitcoin and stocks. And it's actually been positive pretty much since the beginning of the pandemic, not a one-to-one correlation, but meeting directionally. They go in the same direction more often than not, which is interesting to me, right, because one of the sort of defenses of Bitcoin or arguments for Bitcoin and other crypto was that it wasn't really correlated with anything else. But it does seem like and the weekend sort of illustrates this.

Then when stocks are risk-off, Bitcoin's risk-off too. So it just, I don't know, I mean, in as much as we know what drives Bitcoin any of the time, what are you hearing from people on this front?

DAVID HOLLERITH: Yeah, I mean, I think at the end of the day, Bitcoin and other cryptocurrencies are a lot of times what the investors make of it. And we've seen in the last year Bitcoin has become an asset that's majority held by institutions. And so if institutions are going to be looking at it as a risk asset, then the main concern is sort of the macro conditions that are forming in the market across the globe. Then we're going to see it behave like a risk-on asset. And that's exactly what happened this weekend.

So, I mean, I think the only other thing to add is just that derivatives play such a large role in the market, too. You'll see these exaggerated moves from time to time when larger institutions are know risking off.

BRIAN CHEUNG: Exaggerated moves from time to time-- I feel like that's kind of an Evergrande way to describe the dynamics in the cryptocurrency markets. But Yahoo Finance's David Hollerith, thanks so much for breaking all that down for us.