Fear spreads across markets as crypto selloff raises alarms

The MSCI Asia Pacific Index tumbled more than 2%, its worst performance in a month, and almost every market in the region lost ground

Bitcoin’s slide below $90,000 worsened a slump in Asia’s financial markets Tuesday, fueling alarm that leveraged investors would set off a negative spiral of selling pressure.

The cryptocurrency fell as much as 2.8%, the latest drop in a slide that has wiped out all of its gains for the year. That ramped up pressure across Asian stock markets: The MSCI Asia Pacific Index tumbled more than 2%, its worst performance in a month, and almost every market in the region lost ground.

Treasuries rose across the curve, with yields on 10-year notes falling four basis points. Haven currencies including the yen and the Swiss franc strengthened while the risk-sensitive Australian dollar declined. The Bloomberg Asia Dollar Index dropped to the lowest since May.

Some market watchers raised the prospect that the crypto selloff would trigger forced selling by retail investors, who may need to dump other assets to meet margin calls. That risks creating a feedback loop, as sliding prices in one market fuel selling pressure elsewhere.

“We could see further downside risk for crypto as portfolio adjustments are made either by choice or to cover losses in equities,” said Nick Twidale, chief market analyst at AT Global Markets in Sydney.

Risk Alarm

The decline of the world’s most popular cryptocurrency came as investors were already fretting about the pace of US interest rate cuts and shifting their focus to high-profile earnings including those of Nvidia Corp., which announces its results this week. But Bitcoin’s drop below $90,000 was enough to turn a broad selloff during the Asian morning into a rout.

“Bitcoin’s extended selloff has definitely amplified the market’s risk alarm, reinforcing the sense that something deeper may be shifting under the surface,” said Hebe Chen, an analyst at Vantage Markets in Melbourne.

Further darkening the mood in the region was an even heavier stock selloff in Japan, pressured partly by concerns over the country’s fiscal woes and a diplomatic spat with China.

The Nikkei 225 Stock Average finished Tuesday down 3.2%, while yields on the 10-year Japanese government bonds rose to the highest since mid-2008 — defying the rush to government bonds elsewhere.

A selloff across markets can become self-reinforcing even without the amplifying effect of leverage. Cryptocurrencies have boomed alongside stocks this year, after investors moved on from fears of a global trade war and started to bet on innovation to fuel a cross-market rally. Those hopes now appear to be fading.

“Momentum is a self-feeding machine,” said Anna Wu, cross-asset investment strategist at Van Eck. “The weakening US sentiment, led by traders selling Nvidia positions ahead of its earnings and macro data, has spilled into Asian markets. If we use Bitcoin as a market sentiment gauge — it’s pointing to bear-market level fear.”