The world’s most valuable cryptocurrency fell 5% on Monday after falling again over the weekend. Bitcoin prices have fallen by nearly 15% in the last week. Priced at just under $ 32,000, bitcoin is more than 50% below its record high of nearly $ 69,000 since the end of last year and at its lowest point since July 2021. Other cryptocurrencies, sometimes called altcoins, are also were severely affected. Ethereum, binance, solana and cardano have fallen by about 15% in the last week, while Elon Musk’s favorite dogecoin has fallen by 10%. Cryptocurrencies are just as risky as stocks and are prone to the same fears that are dragging down the Dow, S&P 500 and Nasdaq.
“Variable trading in digital assets has not been so uncommon in previous years,” said Michael Kamerman, CEO of the Skilling trading platform. “Cryptocurrencies are increasingly moving in line with technology stocks, with investors being treated as risky assets and often withdrawing to safer corners of the market during bouts of market volatility.
Kamerman said he was still optimistic about bitcoin in the long run. More hedge funds and other large institutions are starting to invest in cryptocurrency, and some global central banks are also starting to accept it.
But he added that “bitcoin is not immune to the global inflation risk that spreads to most other asset classes. So we should expect to see a downward trend.”
Bitcoin is affected by the same problems with pulling stocks
Fears of inflation, concerns about large increases in Federal Reserve interest rates and concerns about a possible economic slowdown have shaken Wall Street and led to a sharp rise in bond yields. Yields on 10-year treasury bonds are now just over 3.1%, more than doubling this year. Long-term bond yields are already at their highest level since November 2018. The rise in yields has also helped boost the value of the dollar, which tends to rise in tandem with interest rates. The US dollar index is now trading near its highest level in twenty years. This is also bad news for bitcoin, as many cryptocurrency supporters point to the weakness of the dollar as a rising sign for digital currencies.
As rates (and dollars) continue to rise, some crypto skeptics believe bitcoin sales have only just begun. The Federal Reserve is beginning to withdraw from monthly bond purchases and other incentives, which could be bad news for all types of speculative assets.
“The Fed’s dramatic reversal of liquidity … will collapse the bubble of the era of the cryptocurrency pandemic, technology-losing technology companies and meme stocks,” said Jay Hatfield, chief investment officer of Infrastructure Capital Management and manager of InfraCap Equity Income ETF.
Hatfield said he believes bitcoin could fall to $ 20,000 by the end of the year.
The crypto collapse is also hurting several stocks with exposure to the industry. Broker Coinbase fell 17% on Monday to more than 65% this year. Robinhood, which also allows people to buy and sell some cryptocurrencies, fell more than 45% in 2022. And shares in several cryptocurrency diggers, companies that run servers that solve the complex math puzzles needed to generate new bitcoins and other cryptocurrencies also fell. Hive Blockchain (HVBTF), Marathon Digital Holdings (MARA) and Riot Blockchain (RIOT) are down between 50% and 60% this year. The mass withdrawal of these and other impulse technology stocks is another sign of the rapid change in market sentiment this year. The CNN Business Fear & Greed Index, which measures seven market sentiment indicators, is in Extreme Fear.
Investors may continue to avoid variable cryptocurrencies in favor of safe havens, such as blue-chip stocks that pay dividends.
Traders are “more reluctant to accept the additional risk associated with the crypto area,” said Tammy Da Costa, an analyst at DailyFX, in a report.
She added that “the future of individual coins or tokens remains questionable” and that “rising interest rates are likely to jeopardize short-term earning potential” in bitcoin, ethereum and other established cryptocurrencies.
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