Bitcoin investors can heave a sigh of relief as prices have stabilized this weekend. But the crypto market appears to be suffering from the same risks hurting tech stocks and other assets as investors adjust for the confluence of threats.
Bitcoin crashed overnight from Friday to Saturday, falling more than 20% from $57,300 to $45,000. Other cryptos also fell, slashing the market value by more than $300 billion to a global total of nearly $2.2 trillion.
Bitcoin has since held steady, even a slight rally to trade near $49,100.
But new fears are chasing crypto markets, as are equities and other “risky assets”. Among them are concerns about the economic impact of the Omicron version of COVID-19. The virus could once again disrupt supply chains and global travel, delaying the global economic recovery that the markets were counting on in 2022.
Also causing panic are comments by Federal Reserve Chairman Jerome Powell, who retired the term “transient”—the term he and other officials have used to describe inflation—when discussing the state of the economy in Congressional testimony. Went.
The Fed chief also said policymakers are likely to discuss eliminating previously anticipated bond purchases, potentially scaling back on a mechanism the Fed used to help the economy weather the pandemic. This has raised hopes that the Fed may start raising interest rates sooner than expected.
Powell’s comments hit tech stocks hard, as they tend to be more sensitive to higher rates than other parts of the equity markets, noting that higher rates reflect less discounted present values for future cash flows. . The comments also indicated that global liquidity could tighten, the cost of leverage for financial assets, or the cost of borrowing could rise.
Fear was evident in crypto markets on Friday as more than $2 billion of long positions were liquidated on global exchanges, including $850 million in bitcoin futures. Investors can buy futures contracts with relatively small amounts of collateral, which increases their risk. The use of leverage has ended, according to Fundstrat Global Advisors, with open interest in bitcoin futures down 70,000 contracts as of Sunday morning, down 18% from the week’s prior level.
The crash is now running through crypto-related stocks, exchange-traded funds and trusts trading on the equity markets. Bitcoin-mining stocks such as Marathon Digital Holdings (ticker: MARA) and Riot Blockchain (RIOT) were down 10% in early trading Monday. The Grayscale Bitcoin Trust (GBTC) was up 10%, as were futures ETFs such as the ProShares Bitcoin Strategy Exchange-Traded Fund (BITO).
Coinbase Global (COIN), the larger crypto exchange, was down 3.7%.
What comes next can depend on factors beyond one’s control, including the spread of the Omicron variant, inflation expectations and investor sentiment as markets come to grips with lower growth projections and higher interest rates.
Technical analysts, for their part, are not particularly sharp.
“This marks a change in intermediate momentum, breaking short-term support and increasing the risk of a more long-term correction,” Katie Stockton, a crypto technical analyst at Fairlead Strategies, said in an interview. He added that the area around $53,000 was a widely watched level for bitcoin price, and when the market fell below it, it triggered a stop-loss sell-off.
Nicolas Kavle, an analyst at DailyFX, echoed that sentiment. “A toxic combination of low liquidity, excessive leverage and overconfidence caused most crypto printing to crash this weekend with multiweek lows, as prices went into freefall,” he said in a commentary.
“While the market is flashing a technical oversold signal, it is likely that the market is going to enter a consolidation phase in the weeks, and perhaps months, before its next move,” he said.
Stockton says the long-term uptrend for bitcoin remains intact. It said that the next technical support level is $44,000. If there is a downside break, the price could move back towards the upper $30,000 level, he believes. “It’s a corrective phase through which you want to manage risk,” she said.
Write to Darren Fonda at [email protected]