Market crash gives biggest test of cryptocurrency as 40% of Bitcoin investors are ‘underwater’ now

The looming fear of higher interest rates spooked traders at the start of the week and sent them selling anything and everything, causing global stocks to post their worst day in nearly two years. If the market panic wasn’t all-out, it came too close.

Cryptocurrencies have fallen along with other stocks on Nasdaq – Bitcoin, the largest cryptocurrency, has fallen below the $30,000 mark and is down 14% since May 6.

Read Bitcoin acts as a high-risk technical stock – and professional traders love it

The sale puts pressure on a common refrain among crypto enthusiasts: — namely, that it is a haven asset, inflation hedge, and store of value — and not just a fun HODL casino with laser eyes and rocket emojis. Digital asset data firm Glassnode found that the market tremor drove exchange deposit-related transaction fees to the second-highest value ever, suggesting that bitcoin investors rushed to “remove risk, sell and/or add collateral to margin.”

“Investors are looking for safety and a track record at a scary time,” said Kaley Cox, investment analyst at eToro. financial news. “This has really tested the narrative of cryptocurrency identity. While crypto may not be doomed here, it may show us that it is not yet ready to be called the New World Order of Money.”

Read TerraUSD drops below its constant value, leading to Crypto selloff

This sentiment was echoed by Neil Wilson, chief analyst at Markets.com.

“Bitcoin is a great barometer of risk now, and we see its decline as evidence of significant deleveraging — not a safe haven,” Wilson said. “It feels like we’re kind of at an important stage in the cycle.” About 40% of bitcoin investors are now underwater, he said, citing Glassnode.

As Fintech Files wrote last month, bitcoin’s correlation with riskier technology stocks shows that the largest and most established cryptocurrency has evolved into a typical asset class just like many others. This is great news for professional traders looking for risks from the world of traditional finance. In the long run, this is not terrible news for armchair investors, many of whom are young and ready to experience some volatility in their first forays into the markets.


Billionaire Mark Cuban was another calming voice, Twitter: “Crypto is going through the lull that the internet has been through,” indicating that digital assets are just getting started and are heading into the mainstream of the global financial system.

“It’s a particularly tough sell because you can’t really derive an intrinsic value for bitcoin just yet,” said eToro’s Cox. “You might eventually settle down, but the center of gravity isn’t clear yet.”

And for now at least, volatility may actually be a feature, not a bug, of cryptography.

The biggest criticism of bitcoin typically revolves around bitcoin as a speculative, high-risk asset, causing hedge funds and other large institutions to be wary of adding exposure to the cryptocurrency, Thomas Lee, managing partner and head of research at New York-based Fundstrat Global advisors said at a conference last month.

Read JPMorgan-turned-crypto exec says ‘Not enough speculation in cryptocurrency’

But he clarified that for every bitcoin used, each coin is speculated two and a half times. Compare that to the U.S. dollar, where that number goes up 96 to one — every dollar in the U.S. economy has been predicted 96 times, “before it falls into our hands,” said Lee, a former Wall Street executive who was chief equity strategist at JPMorgan from 2007 to 2014.

As for oil – every barrel of oil bought and used by a refiner – it is traded 31 times on a speculative basis.

“So cryptocurrency really needs more speculation,” he told me. ‘It is actually less than market speculation.’

Read Cryptocurrency platforms are competing for top traders in a crowded area

This is all well and good. But what if you really want to make money?

“The market is looking for cash flow, not concepts these days,” Cox said. “When bond yields go up, [investors] The value of future cash flows is discounted incrementally. In other words, you may have to wait longer for the growth stock story to come to an end.”

“It’s still an emerging asset, and this is just a growth process,” she added.

To contact the author of this story for comment or news, email Trista Kelley

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