With the Federal Reserve intent on pulling stimulus from the market, riskier assets around the world suffered. Bitcoin, the largest digital asset, lost more than 12% on Friday and fell below $36,000 to its lowest level since July. Since its peak in November, it has lost more than 45% of its value. Other digital currencies have suffered just as much, if not more, with Ether coins and even mired in similar drawdowns.
Bitcoin’s decline since that November high has wiped out over $600 billion in market value, and over $1 trillion has been lost in the overall crypto market. While there were much larger percentage pullbacks for Bitcoin and the overall market, this is the second largest dollar drop ever for both, according to Bespoke Investment Group.
This gives an idea of the extent of value destruction that percentage declines can mask, Bespoke analysts wrote in a note. Crypto is, of course, vulnerable to these types of selloffs given its naturally higher volatility historically, but given the importance of market caps, volatility is worth considering both in terms of raw dollars and in percentage terms.
With the Fed’s intentions to swing both cryptocurrencies and stocks, a dominant theme has emerged in the digital asset space: cryptos have twisted and turned in almost exactly the same way as stocks.
Crypto is reacting to the same kind of dynamics weighing on risky assets globally, said Stéphane Ouellette, managing director and co-founder of institutional crypto platform FRNT Financial. Unfortunately for some of the mature projects like BTC, there is so much cross-correlation within the crypto asset class that it is almost certain to fall, at least temporarily, into a broader contraction in alt valuation. -corners.
Crypto-centric stocks also fell on Friday, with Coinbase Global Inc. at one point losing nearly 16% and falling to its lowest level since its public debut in spring 2021, according to data from Bloomberg.
MicroStrategy Inc. fell 18% as the Securities and Exchange Commission said the company could not rule out wild swings in Bitcoin from the unofficial accounting metrics it touts to investors. The enterprise software company’s Bitcoin stack has effectively made its shares a proxy for the digital asset.
Meanwhile, the Biden administration is preparing to release an initial government-wide strategy for digital assets as early as next month and task federal agencies with assessing the risks and opportunities they present, according to people familiar with the matter.
Antoni Trenchev, co-founder and managing partner of Nexo, cites the correlation between Bitcoin and the tech-heavy Nasdaq 100, which is currently near the highest in a decade.
Bitcoin is being beaten by a wave of risk sentiment. For other clues, keep an eye on traditional markets, he said. Investor fear and unease is palpable.
Also take the correlation between Bitcoin and Cathie Woods ARK Innovation ETF (ticker ARKK), a pandemic poster of speculative risk-taking. This correlation stands at around 60% since the start of the year, compared to around 14% for the price of gold, according to Katie Stockton, founder and managing partner of Fairlead Strategies, a research company specializing in analysis. technical. It reminds us to categorize Bitcoin and altcoins as risky assets rather than safe havens, she said.
Meanwhile, more than 239,000 traders have had their positions closed in the past 24 hours, with liquidations totaling around $874 million, according to data from Coinglass, an exchange and market intelligence platform. cryptocurrency futures contracts.
Although liquidations have increased, the numbers are relatively small compared to previous declines, according to Noelle Acheson, head of market intelligence at Genesis Global Trading. Acheson points out that Bitcoin’s one-week bias, which compares the cost of bearish options to bullish options, hit almost 15% on Wednesday, from an average of around 6% over the past seven days.
That signaled a jump in bearish sentiment, in line with overall market jitters given the current macro uncertainty, she said.
Kara Murphy, chief investment officer at Kestra Investment Management, said cryptocurrencies have a life of their own, but the recent crisis is rational.
It makes sense as people start to pull back a bit, look for something a bit more solid, they’re going to get away from crypto, she said. On the sidelines, with people becoming more and more risk averse, crypto will suffer.
–With help from Justina Lee, Emily Graffeo and Ed Ludlow.
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