After a week of stable internal collapse of currencies, the cryptocurrency market continues its bearish trajectory.
This week, the price of Bitcoin is down 6%, and other major currencies have followed suit. Ethereum is down 11%, BNB 5%, dogecoin 3%, cardano 15%, terra’s luna 80%, XRP 10% and solana 16%.
The turning point was yesterday when the goal
a reason? economic inflation.
“Inflation in the United States this high and moving so quickly, in both food and general merchandise, is unusual…We knew we had stimulus dollars from last year, but the food inflation rate has pushed more dollars further than we were expecting As customers need to pay for food inflation,” Walmart CEO Doug McMillon said.
In the news, the S&P 500 and Nasdaq collapsed 4% and 5%, erasing all of their gains for the week. Bitcoin fell to just over $28,700 – the lowest level since TerraUSD
[Ed note: Investing in crypto is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
This reaffirms a hypothesis that I’ve been drumming on for the past couple of months: Contrary to the “hedging” proposal, the cryptocurrency has matured into a high beta stock. As I wrote:
“If recent market moves are any indication, cryptocurrency is largely at the mercy of other risky assets and how they will behave during the Fed’s fight with inflation.
This is because, despite its promising store of value, crypto is still a highly stock beta. And their “interaction” is getting stronger. In a recent analysis, Coindeks reported that Bitcoin’s correlation with the Nasdaq is the highest ever.”
There are several reasons for this.
First, over the past year, big money has taken over the cryptocurrency market. According to Morgan Stanley
“Retail investors are no longer the dominant cryptocurrency trader. The largest proportion of daily cryptocurrency trading volumes come from crypto institutions, and much of it comes from trading with each other. For example, exchanges, custodians and crypto funds. Retail traders have been dominant for about four years now. , when bitcoin was trading at less than $10,000. We believe the increased participation of institutions sensitive to the availability of capital and thus interest rates, has partially contributed to the significant correlation between bitcoin and equities,” Morgan Stanley wrote in a note.
Second, as the markets turn south, institutional investors are dumping crypto assets as quickly as possible due to their high liquidity. Howard Greenberg of Prosper Academy of Trading explained: “For institutions it is easier to liquidate their cryptocurrency positions, especially with 24/7 access to their capital than some other positions, so they tend to be the first positions to close.” .
I look ahead
Institutional adoption has become a double-edged sword for cryptocurrencies. It injected more capital into this market during a bull market, but at the same time it subjected cryptocurrency to the “rules” that traditional assets adhere to in a bear market.
As Bob Iacchino, chief strategist at Path Trading Partners, said, “This is the nature of tradable assets…when an asset is sold, all assets are sold.”
And in such a random sale, by default, the most speculative assets suffer the most. In fact, one of the most respected crypto-analysts, Rekt Capital believes that smaller altcoins will lose 90% of their value if this bear market cbeginnings.
“If BTC loses its low macro range [around $28,000], that would further underscore the downside in the cryptocurrency market. Which could enable cryptocurrencies to follow a record bear market correction of over 90%,” Rekt Capital tweeted yesterday.
So if inflation continues to make new highs, we are likely to see more selling in traditional risk assets, and therefore more selling in cryptocurrencies.
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