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Digital asset prices have collapsed in 2022.
Dreamstime
Bitcoin
and other cryptocurrencies fell back on Monday after the rally over the weekend. Digital asset investors are not immune to the fear of recession that has shaken wider markets, and the coming week has important catalysts that could see more volatility.
The price of Bitcoin fell 3% over the last 24 hours and held around 20,500 dollars, after trading close to 22,000 dollars after a Friday rally that continued over the weekend. The largest digital asset continues to change owners with less than a third of its record high, close to $ 69,000, reached in November 2021, but is well above the $ 18,000 bottom hit during the bottom of a mid-June sale.
Other cryptocurrencies saw decline as well.
Ether,
the second largest token after Bitcoin, lost 3% to below $ 1,150. Smaller cryptocurrencies or “altcoins” were correspondingly lower, with
Solana
and
Cardano
each emits 3%, while “memecoins” – originally intended as internet jokes –
Dogecoin
and
Shiba Inu
fell 4% and 2%, respectively.
It has been a tough ride for digital assets this year, with the market value of cryptocurrencies falling to $ 920 billion from almost $ 3 trillion in November 2021, as many if not most tokens lost upwards of two-thirds of the value.
Falling prices have led to cracks in the cryptoecosystem, such as the meltdown of stablecoin Terra, the collapse of lenders including Celsius and Voyager Digital, and the collapse of a large hedge fund that threatens broader transmission.
But crypto’s correlation to equities is to blame for most of this year’s declines. While Bitcoin and its peers in theory should trade independently of ordinary finance, they have been shown to be correlated with other risk-sensitive assets such as stocks, and especially technology stocks. And stocks are in a bear market, with the technology-heavy ones
Nasdaq
the index has lost 27% so far this year, while the broader
S&P 500
has fallen 19%.
“The downward trend in the crypto market continues due to increased fears of an incoming recession. Google’s search volume of recession has skyrocketed in recent weeks,” wrote Marcus Sotiriou, analyst at digital assets broker GlobalBlock, in a note.
Investors are nervous about the possibility of an economic downturn. In the face of the highest inflation in decades, the Federal Reserve has already stepped in to crack down on glowing prices with tighter monetary policy. The fear is that more aggressive interest rate increases may push economic demand to a point to spur a recession.
News in the coming week can provide more clarity about the inflation picture and how companies view the economy – which can be catalysts for both equities and crypto. US consumer price inflation (CPI) data is set to be released on Wednesday, with expectations that inflation will push to a new 40-year high of 8.8% year-over-year.
“The market appears to be preparing for potentially shocking numbers on Wednesday,” Yuya Hasegawa, an analyst at the Bitbank cryptocurrency exchange, wrote in a note. “The upside of Bitcoin will probably be limited until then, and the outlook for the latter half of the week will also depend on the performance of the KPI.”
This week will also begin the earnings season. On Thursday, heavyweights on Wall Street take the lead, with results from
JPMorgan Chase
(ticker: JPM) and Morgan Stanely (MS), ahead of Citi (C) and BlackRock (BLK) on Friday.
“This is a very important season (not all of them) as the collapse of equities so far in 2022 is largely due to margin compression and not really weak earnings,” wrote Jim Reid, a strategist at Deutsche Bank, in a note.
Solid earnings may signal that the economy is healthier than investors have feared. But it can be a double-edged sword; If the economy remains strong, the Fed has little reason to slow down the tightening of monetary policy, while fluctuations in the economy may dampen the pace of interest rate increases.
Still, even if investors get what they want from inflation data and earnings, Bitcoin still faces a ceiling, according to Hasegawa, which has a weekly target range of the largest crypto of $ 12,000 to $ 24,000.
“An eruption from the current area is still unlikely even if inflation data turns out to be significantly lower than expected,” the analyst wrote. Hasegawa noted that Bitcoin miners – who have been under pressure from higher energy prices and lower cryptocurrencies – have consistently added deposits to exchanges, signaling more sales pressure going forward.
“And Bitcoin’s 200-week moving average, which is currently around $ 22,600, appears to be strong resistance to the price,” Hasegawa added.
Write to Jack Denton at [email protected]
