So much for bitcoin being digital gold.
The world’s most valuable cryptocurrency fell 10 percent on Monday after falling again over the weekend. Bitcoin prices have now fallen by almost 20% in the past week. Priced at just under $ 31,000, bitcoin is more than 50% below its record high of close to $ 69,000 from the end of last year and at its lowest point since July 2021.
Other cryptocurrencies, sometimes called altcoins, are also hard hit. Ethereum, binance, solana and cardano fell about 15% last week, while Elon Musk’s dogecoin fell 10%.
Cryptocurrencies have been shown to be just as risky as stocks and subject to the same concerns that drive down the Dow, S&P 500 and Nasdaq.
“Volatile digital asset trading has not been so unusual in previous years,” said Michael Kamerman, CEO of the Skilling trading platform. “Cryptocurrencies are increasingly moving in sync with technology stocks with investors treating them as risky assets and often retreating to safer corners of the market during attacks of market instability.”
Kamerman said he is still in the long run for bitcoin. More and more hedge funds and other large institutions are starting to invest in cryptocurrencies, and some global central banks are starting to accept this.
But he added that bitcoin is not immune to the global risk of inflation that spreads to most other asset classes. Therefore, we should expect the downward trend to continue. ”
Fears of inflation, worries about a sharp rise in Federal Reserve interest rates and worries about a possible economic slowdown have upset Wall Street and led to a dizzying rise in bond yields.
The yield on 10-year treasury bonds is now just over 3.1%, and has more than doubled this year. Yields on long-term bonds are now at their highest level since November 2018.
Rising yields have also helped raise the value of the dollar, which tends to grow in tandem with interest rates. The U.S. dollar index is now trading close to its highest level in twenty years. This is bad news for bitcoin as well, as many cryptocurrency supporters point to the weakness of the dollar as a bull sign for digital currencies.
As rates (and the dollar) continue to rise, some crypto skeptics think bitcoin sales have just begun. The Federal Reserve is beginning to withdraw monthly bond purchases and other incentives that could be bad news for all types of speculative assets.
“The Fed’s dramatic turnaround in liquidity … will break the bubble of the pandemic era in cryptocurrencies, technology companies losing money and meme stocks,” said Jay Hatfield, chief investment officer of Infrastructure Capital Management and manager of InfraCap Equity Income ETF.
Hatfield said he thinks bitcoin could fall to as much as $ 20,000 by the end of the year.
Crypto collapse also harms several stocks exposed to the industry. Broker Coinbase fell 17% on Monday and more than 65% this year. Robinhood, which also allows people to buy and sell some cryptocurrencies, fell more than 45% in 2022.
And shares of several cryptocurrency miners, companies running servers that solve complex mathematical puzzles needed to generate new bitcoins and other cryptocurrencies, have also fallen. Hive Blockchain (HVBTF), Marathon Digital Holdings (MARA) and Riot Blockchain (RIOT) have fallen between 50% and 60% this year.
The huge withdrawal of these and other technology stocks on the rise is another sign of a rapid change in market sentiment this year. The CNN Business Fear and Greed Index, which measures seven indicators of market sentiment, is in the area of extreme fear.
Investors could continue to avoid volatile cryptocurrencies in favor of safe havens, such as blue-chip stocks that pay dividends.
Traders are “more unwilling to accept the additional risk associated with the cryptosphere,” Tammy Da Costa, an analyst at DailyFX, said in a report.
She added that “the future of individual coins or tokens remains doubtful” and that “rising interest rates are likely to jeopardize short-term earning potential” in bitcoin, ethereum and other established cryptocurrencies.