Cryptocurrencies take new dive to end turbulent week

Cryptocurrency prices took a renewed dive on Friday after China launched its second broadside against bitcoin in three days.

The new swoon wiped 12 per cent off the value of bitcoin, 20 per cent from ethereum and 18 per cent from dogecoin and also appeared to bleed over into the US stock market, where the tech-heavy Nasdaq dipped in the last hour of trading to close near its low for the day.

A Friday statement from China’s vice-premier Liu He that restated Beijing’s determination to curb cryptocurrency mining and trading triggered the latest decline.

The crypto exchange Coinbase was showing a bitcoin price just above $34,000 late in the US afternoon on Friday, still above the low of around $30,000 set on Wednesday after the People’s Bank of China warned financial institutions off accepting cryptocurrencies as payment or offering related services and products.

The technology-focused Nasdaq Composite index ended 0.5 per cent lower on the day although the index remained 0.3 per cent higher for the week.

The S&P 500 index closed 0.1 per cent lower, also near its low for the day and 0.4 per cent down on the week. The result meant the index’s first back-to-back weekly losses since February.

On Wednesday the Federal Reserve published minutes of its latest policy meeting that showed some of its rate-setters thought the US central bank should “at some point” start to discuss “a plan for adjusting the pace of asset purchases”.

Global equities had been volatile in the run-up to the release of the minutes, but settled as analysts and investors reacted to signals that the US central bank remained in no hurry to reduce $120bn of monthly bond purchases that have boosted financial markets since March last year.

“We remain sceptical that officials will be ready to send what might be construed as a taper countdown signal” in June or July, said Jim O’Sullivan, TD Securities chief US macro strategist, “which would likely be needed for tapering to be announced before year-end”.

On Friday a survey investors watch for signs of changes in economic output indicated that business conditions in the US were booming.

IHS Markit’s purchasing managers’ index for the US, based on manufacturing and service sector executives’ responses to questions on topics such as hiring plans and new business, produced its highest-ever reading of 68.1 for May.

A reading of 50 separates growth from contraction in the index, with the so-called flash reading for May driven higher by what IHS called “the fastest service sector upturn on record”, as previously shuttered sectors of the economy reopened.

While the PMI surveys are closely scrutinised for signs of economic recovery, they also offer insight into future levels of inflation that can eat into the real returns from stocks and bonds.

“The rate of input price inflation soared to a new survey record high,” IHS said. And while the Fed’s policymakers still largely view inflationary pressures as a transitory effect of a post-pandemic boom in demand, a lengthy rally in global stocks has paused in the past month as investors query whether the central bank could move too slowly to tackle price rises.

“While economic activity is steadily improving, what equity markets will internalise is that there is less cause for support on the monetary policy front as the data improves,” said Mobeen Tahir, research director at WisdomTree.

The price of spot gold, perceived as a hedge against inflation, traded at $1,880 an ounce on Friday, its highest level since January.

The yield on the US 10-year Treasury note was flat at 1.623 per cent. Germany’s equivalent Bund yield was also steady at minus 0.126 per cent.

The euro fell 0.3 per cent against the dollar to $1.2185 as the US currency bounced following the PMI survey. The dollar index, which measures the greenback against trading partners’ currencies, was up 0.2 per cent by the end of the trading day in New York.

Brent crude, the global oil benchmark, also added to gains from earlier in the session, rising 2.4 per cent to $66.68 a barrel.

Europe’s Stoxx 600 index rose 0.6 per cent, in a late-session rally led by energy stocks.