Bitcoin Plunge Triggers Collapse of Risk Assets... Stock Market and Commodities Fall Together (Comprehensive)

US Stock Market Falls Up to 1.7% Due to Cryptocurrency Crash
Commodity Prices Also Turn Weak
Fed Says "Asset Purchase Reduction Should Be Discussed When Economic Recovery Becomes Visible"

[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] Risk assets such as stocks, commodities, and Bitcoin all plunged simultaneously in the New York capital market. The ripple effect that started with the sharp drop in Bitcoin has spread to the financial and commodity markets.

Although cryptocurrency prices rebounded in the afternoon, reducing the extent of the decline, the Federal Reserve's (Fed) indication of a possible tapering of asset purchases also weighed on the market.

On the 19th (local time), the Dow Jones Industrial Average fell 164.62 points (0.48%) to close at 33,896.04, the S&P 500 index dropped 12.15 points (0.29%) to 4,115.68, and the Nasdaq index declined 3.90 points (0.03%) to 13,299.74.

The major indices of the New York Stock Exchange started sharply lower amid the Bitcoin crash that emerged before the market opened. As risk asset investment sentiment became extremely subdued, the Nasdaq index fell as much as 1.7% intraday. The Dow also plunged 1.7%.

On this day, Bitcoin plummeted from around $38,000 to $30,000 in an instant following a report by JPMorgan Chase that institutional investors are shifting their investments from cryptocurrencies to gold. On Robinhood, it even dipped into the $29,000 range. After a report early in the morning about warnings on cryptocurrencies from China, Bitcoin lost $40,000 and then dropped an additional $10,000.

The Bitcoin crash was so severe that services of major exchanges and price providers were suspended. Most cryptocurrencies, including Ethereum and Dogecoin, also showed declines of around 30% simultaneously.

The Bitcoin plunge did not last long. When Tesla CEO Elon Musk tweeted that "Tesla has diamond hands," urging restraint on Bitcoin sell-offs, the Bitcoin price recovered back to $40,000.

Stocks of Bitcoin-related companies such as Tesla, Coinbase, and MicroStrategy also fell sharply during the day. Ark Asset Management, operated by Cathie Wood, took advantage of the price drop to massively increase its stake in Coinbase.

The major indices briefly hesitated after the release of the FOMC minutes at 2 p.m., which for the first time suggested the possibility of tapering asset purchases, but then quickly recovered their losses. The Nasdaq showed resilience by recovering to near flat levels.

The April FOMC minutes released that day stated, "Many participants indicated that if the economy continues to move quickly toward the committee's goals, it may be appropriate to begin discussing plans to adjust the pace of asset purchases at some point in upcoming meetings."

Following this news, the yield on the U.S. 10-year Treasury note surged from around 1.65% to the 1.69% range but did not have further impact on the market.

Besides Bitcoin and the stock market, commodity prices also plunged simultaneously that day. The price of West Texas Intermediate (WTI) crude oil in the U.S. fell more than 5% intraday and closed down 3.3% at $63.36 per barrel.

Most commodities, including copper, lumber, and grains, also suffered significant declines.

Despite the drop in major commodities, gold attracted attention as a safe-haven investment and showed strength. Gold closed up $13.50 (0.7%) at $1,881.50.

Bloomberg News identified the reason for the decline in commodity prices as concerns that excessive price increases could actually reduce demand despite expectations of a commodity supercycle. The risk-asset avoidance triggered by the cryptocurrency price plunge was also interpreted as a factor that accelerated the decline in commodity prices.

This content was produced with the assistance of AI translation services.