The fall in global stocks seems to be spreading in the nascent crypto market, with the weekend selloff turning into a mini-flash crash in the prices of bitcoin and other notable digital assets.
Want Intel on the Crypto Markets? Sign up for our distributed ledger newsletter,
At the last check of Saturday afternoon New York time, Bitcoin BTCUSD,
It was changing hands on CoinDesk at $48,186.96, down 12% over the past 24 hours, but the overnight drop in the early hours of Saturday morning was even more excruciating. Bitcoin’s fall to around $42,000 on some exchanges meant that it had fallen from peak-to-trough by about 30% on a 24-hour basis.
NYDIG, a technology and financial services firm dedicated to bitcoin, said the fall was even more severe for some offshore platforms such as Huobi, where bitcoin briefly touched a 24-hour nadir at $28,800.
This is a terrifying drop that could make even some seasoned crypto bulls nervous.
The decline also meant that the total market cap of the cryptocurrency universe as tracked by CoinMarketCap.com fell from around $400 billion to nearly $2 trillion before recovering to around $2.2 trillion.
So what happened? It’s not 100% clear.
Analysts at CoinDesk blamed at least some slowdown on trading in crypto derivatives, fueled by growing concerns about the prospect of tighter financial conditions potentially forcing a revaluation of assets sensitive to rising lending costs. Used to be.
Katie Stockton of Fairlead Strategies wrote, “The decline was partly technically driven, accelerated by the derivatives market, and was not helped by the momentum behind high-growth stocks on Friday, turning bitcoin positively.” has been correlated.” Saturday morning note.
The NYDIG estimates that $1.1 billion of leveraged bitcoin positions and $2.5 billion of crypto leveraged positions (including bitcoin) have been liquidated in the past 24 hours, representing the largest such hypothetical liquidation since September 7.
Bitcoin’s value has been softening for weeks, but declines for other riskier assets are accelerating with the Federal Reserve indicating it could accelerate the pace at which it has weathered the past 18 months amid the coronavirus pandemic. Withdrawing the market support provided during the This so-called “taping” of bond purchases has led investors to believe that interest rate hikes are next on the central bank’s agenda in 2022.
Some believe that bitcoin and other digital assets are not related to the prices of other assets, which has been heralded as one of the more attractive features of bitcoin and its ilk. However, crypto has traded out of step with traditional stocks and bonds recently partly due to the low interest rate environment and if this changes then the values of a host of assets, also factoring in inflation. should be reevaluated.
Put another way, the value of an asset is its future earnings, discounted at present using interest rates, plus a “risk premium”—something riskier than a government bond—you have to be spared for owning. expect returns. A rising interest rate reduces the present value of that future income.
In traditional markets, that revaluation has underperformed technology stocks because they are most sensitive to changes in rates. The tech-laden Nasdaq Composite Index Comp,
Standing 6% from its November 19 peak, the fall has been gathering steam over the past week, amid concerns about the economic impact of the coronavirus pandemic and the Fed’s monetary policy plans.
Meanwhile, the Dow Jones Industrial Average (DJIA),
is halfway toward correction, and is up more than 5% from its November 8 record close, and the S&P 500 Index SPX,
18 from its all-time high close put put, while the small-capitalization Russell 2000 Index fell in a correction, usually defined as a decline of at least 10% from its recent peak on Thursday .
On Twitter, Michael Novogratz, founder and CEO of crypto firm Galaxy Digital, tweeted that the background in the markets was a “perfect storm”, perhaps referring to the collapse in broader markets, Omicron fears and scathing comments from the Federal Reserve.
Fairlead’s Stockton says that if the bearish trend continues, once bitcoin breaks the support area around $53,000, it will qualify as a more troubled technical breakdown of the asset’s price uptrend.
“Momentum has weakened to such an extent that there is a pending weekly MACD ‘sell’ signal that will solidify tomorrow at a certain breakdown, he wrote, referring to the moving average convergence/divergence as a gauge of momentum by technical analysts. Used to be an asset.
However, the NYDIG suggested that they are seeing positive trends for bitcoin and crypto: “At our desks, we’ve seen a two-way flow today, with 84% of the flows at our trading desks being buy, tax loss harvesting trades.” except,” the company wrote in a note on Saturday.
In other cryptos, Ether ETHUSD,
The blockchain on Ethereum was trading down 6% but above $4,000 at 4,050.85, at last check on Saturday afternoon. It was as low as about $3,500 overnight.
Certainly, crypto is one of the more volatile assets and is still in the stage of gaining credibility as a true alternative asset.
Some crypto bulls, who are known to hold investments for long periods of time despite wild swing tendencies, were highlighting Saturday’s downturn such as this tweet from a Twitter account linked to Billy Marcus, one of the founders of Dogecoin DOGEUSD. ,
which has become such a popular meme asset that it has been duplicated by other tokens such as the Shiba Inu SHIBUSD,