A drop in global stocks appears to be spilling over into the nascent crypto market, with a weekend selling episode turning into a mini-flash of prices for bitcoin and other notable digital assets.
changed hands at $ 48,186.96 on CoinDesk, down 12% in the past 24 hours, but the nightly descent in the early hours of Saturday morning had been even more painful. Bitcoin’s drop to around $ 42,000 on some exchanges meant it had fallen nearly 30% from its peak to its low on a 24-hour basis.
NYDIG, a dedicated Bitcoin technology and financial services firm, said the decline was even more severe for some offshore platforms such as Huobi, where bitcoin briefly touched a 24-hour nadir at $ 28,800.
It’s a heart-wrenching fall, which may even leave some veteran crypto bulls a little nauseous.
The drop also means that the total market value of the crypto universe, as tracked by CoinMarketCap.com, lost nearly $ 400 billion to around $ 2,000 billion, before rising to around $ 2.2 billion. of dollars.
So what precipitated the fall? It is not 100% clear.
CoinDesk analysts blamed at least part of the slowdown on crypto derivatives trading, amplified by growing concerns about the outlook for tighter financial conditions that will force a revaluation of assets sensitive to a potential increase in borrowing costs.
“The decline was likely in part due to technique, exacerbated by the derivatives market, and was not helped by the bearish momentum in high-growth stocks on Friday, to which bitcoin was positively correlated,” Katie wrote. Stockton of Fairlead Strategies, in a Saturday Morning Note.
NYDIG estimates that $ 1.1 billion of leveraged bitcoin positions and $ 2.5 billion of crypto leveraged positions (including bitcoin) were liquidated in the past 24 hours, which is the most major fictitious liquidation of this type since September 7.
Bitcoin values have softened for weeks, but declines in other risky assets have accelerated, with the Federal Reserve indicating it may increase the pace at which it withdraws market support provided over the past 18 months during the coronavirus pandemic as she turns her attention to controlling inflation. This so-called “tapping” of bond purchases makes investors believe that interest rate hikes are the next step on the central bank’s agenda in 2022.
Some believe that bitcoin and other digital assets are not correlated with the prices of other assets, which has been touted as one of the most attractive features of bitcoin and its ilk. However, crypto has traded more in tune with traditional stocks and bonds recently, in part because of the low interest rate environment and if that changes, the values of a multitude of assets, holding also account for inflation, need to be reassessed.
In other words, the value of an asset is its future income, discounted to the present using interest rates, plus a “risk premium” – the extra return you expect to own something more. risky than a government bond. A rising interest rate decreases the present value of that future income.
In traditional markets, this revaluation has seen technology stocks underperform because they are the most sensitive to rate changes. The Nasdaq Composite Index COMP, in charge of technology,
sits 6% from its peak on November 19, with declines accelerating over the past week, amid fears about the economic impact of the omicron coronavirus variant and concerns about plans to Fed monetary policy.
Meanwhile, the Dow Jones Industrial Average DJIA,
is midway through a correction and is down more than 5% from its record close on November 8 and the S&P 500 SPX Index,
is 3.5% from its historic close on November 18, while the Russell 2000 Small Cap Index has fallen into a correction, generally defined as a decline of at least 10% from a recent summit, Thursday.
On Twitter, Michael Novogratz, founder and CEO of crypto firm Galaxy Digital, tweeted that the backdrop for the markets was a “perfect storm,” perhaps referring to the collapse of larger markets, fears of ‘omicron and hawkish comments from the Federal Reserve.
Fairlead’s Stockton says that if the slowdown persists, after bitcoin breaks through a support zone at around $ 53,000, it would be seen as a more troubling technical breakdown of the asset’s upward trend.
“Momentum has weakened as there is a pending MACD weekly” sell “signal that would solidify in a confirmed outage tomorrow, she wrote, referring to the moving average of convergence / divergence, used by technical analysts as an indicator of momentum in an asset.
However, NYDIG suggested that they see positive trends for bitcoin and crypto: “On our desk, we saw two-way flows today with 84% of the flows purchased on our trading desk excluding loss harvest trades. tax, ”the company wrote. in a note on Saturday.
In other crypto, Ether ETHUSD,
on the Ethereum blockchain was trading down 6% but holding above $ 4,000 at 4,050.85, at the last check on Saturday afternoon. It had been as low as about $ 3,500 overnight.
Certainly, crypto is one of the most volatile assets and is still in the process of gaining credibility as a bona fide alternative asset.
Some crypto bulls, known to hold the investment for the long term despite its tendency for wild swings, shed light on Saturday’s crisis like this tweet from the Twitter account associated with Billy Markus, 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 Shiba Inu SHIBUSD,