New York: For Bitcoin, there has only been one constant recently: decline after decline after decline. And the superlatives have accumulated very quickly.
With the Federal Reserve intending to withdraw market stimulus, riskier assets around the world have suffered. Bitcoin, the largest digital asset, lost as much as 9 percent on Friday and fell below $38,000 to its lowest level in six months. Since its peak in November, it has lost more than 40 percent of its value. Other digital currencies have suffered as much, if not more, with Ether and meme coins mired in similar declines.
Bitcoin's decline since that November high has wiped out over $570 billion in market value, and roughly $1.17 trillion has been lost from the aggregate crypto market. While there have been much larger percentage declines for both Bitcoin and the aggregate market, this marks the second largest decline in dollar terms for both, according to Bespoke Investment Group.
โIt gives an idea of โโthe scale of value destruction that percentage declines can mask,โ Bespoke analysts wrote in a note. โCrypto is, of course, vulnerable to these types of sell-offs given its naturally higher volatility historically, but given how large a market cap it has become, it is worth thinking about volatility both in gross dollar terms and in percentage terms. ".
twists and turns
With the Fed's intentions shaking both cryptocurrencies and stocks, a pervasive theme has emerged in the digital asset space: cryptocurrencies have been twisted and turned in almost exactly the same way as stocks.
โCrypto is reacting to the same kind of dynamic that is weighing on risky assets globally,โ said Stephane Ouellette, CEO and co-founder of institutional crypto platform FRNT Financial. โUnfortunately for some of the mature projects like BTC, there is so much cross-correlation within the crypto asset class that it almost certainly falls, at least temporarily, into a broader altcoin valuation contraction.โ
Crypto-centric stocks also fell on Friday, with Coinbase Global Inc. at one point shedding nearly 16 percent and falling to its lowest level since its public debut in spring 2021, Bloomberg data shows.
MicroStrategy Inc. fell 18 percent, while the Securities and Exchange Commission said the company cannot remove Bitcoin's wild swings from unofficial accounting measures it touts to investors. The enterprise software company's Bitcoin stack has effectively turned its stock into a proxy for the digital asset.
Was it a bubble?
Antoni Trenchev, co-founder and managing partner of Nexo, cites Bitcoin's correlation with the big tech Nasdaq 100, which is currently near the highest level in a decade.
โBitcoin is being hit by a wave of risk-off sentiment. For more clues, keep an eye on traditional markets,โ he said. "The fear and unease among investors is palpable."
Take also the correlation between Bitcoin and Cathie Wood's ARK Innovation ETF (ticker ARKK), a pandemic example of speculative risk-taking. That correlation stands at around 60% year-to-date, versus 14% for the price of gold, according to Katie Stockton, founder and managing partner of Fairlead Strategies, a research firm focused on technical analysis. It is "reminding us to classify Bitcoin and altcoins as risky assets rather than safe havens," he said.
Meanwhile, more than 239,000 traders closed their positions in the last 24 hours, with liquidations totaling approximately $874 million, according to data from Coinglass, a cryptocurrency futures trading and information platform.
