For Bitcoin price there has been only one constant lately: drop after drop after drop. And the superlatives for the cryptocurrency are piling up very quickly.
For Bitcoin price there has been only one constant lately: drop after drop after drop. And the superlatives pile up very quickly. As the Federal Reserve plans to pull the stimulus out of the market, riskier assets around the world have suffered. Bitcoin, the largest sirbptial asset, lost a whopping 8.7% on Friday, falling below $38,000 to its lowest level in six months. Since its peak in November, it has lost 40% of its value. Other sirbptial currencies have suffered just as much, if not more, with Ether and meme coins stuck in similar shots.
The decline in Bitcoin price since that November high has wiped out more than $570 billion in market value and about $1.17 trillion has been lost to the total crypto market. While there have been much larger percentage declines for both Bitcoin and the overall market, this is the second largest dollar decline ever for both, according to Bespoke Investment Group.
“It gives an idea of the magnitude of value destruction that percentage declines can mask,” Bespoke analysts wrote in a note. “Crypto is, of course, vulnerable to this kind of sell-off given its historically higher volatility, but given the large market caps, the volatility is worth considering, both in terms of raw dollars and percentages.”
With the Fed’s intentions to fluctuate both cryptocurrencies and stocks, a dominant theme has emerged in the sirbptial asset space: cryptos have been twisted in almost exactly the same way as stocks.
“Crypto is responding to the same kind of dynamics that are weighing on risk assets globally,” said Stephane Ouellette, chief executive 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-coin valuation.”
Cryptocentric stocks also fell on Friday, with Coinbase Global Inc. at one point, it lost nearly 16%, falling to its lowest level since its public debut in the spring of 2021, data from Bloomberg shows.
Antoni Trenchev, co-founder and managing partner of Nexo, cites Bitcoin’s correlation with the tech-heavy Nasdaq 100, which is currently near the highest in a decade.
“Bitcoin is being ravaged by a wave of risky sentiment. Keep an eye on traditional markets for further clues,” he said. “Investor fear and unease is palpable.”
Also consider the correlation between Bitcoin and Cathie Wood’s ARK Innovation ETF (ticker ARKK), a pandemic poster child of speculative risk-taking. According to Katie Stockton, founder and managing partner of Fairlead Strategies, a research firm dedicated to technical analysis, that correlation is around 60% year-to-date, compared to about 14% for gold. It “reminds us to categorize Bitcoin and altcoins as risky assets rather than safe havens,” she said.
Meanwhile, more than 239,000 traders had closed their positions in the past 24 hours, with liquidations totaling about $874 million, according to data from Coinglass, a cryptocurrency futures trading and information platform.
While the number of liquidations has risen, the numbers are relatively muted compared to past declines, according to Noelle Acheson, head of market insights at Genesis Global Trading. Acheson points out that Bitcoin’s one-week skew, which compares the cost of bearish options to bullish options, peaked to nearly 15% on Wednesday, from an average of about 6% over the past seven days.
“This marked a jump in bearish sentiment, in line with the general 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 slump is rational.
“It makes sense if people pull back a little bit, look for something a little more solid, they’re going to move away from crypto,” she said. “On the fringe, with people becoming more risk averse, crypto will suffer.”