The world’s most valuable cryptocurrency fell 10% on Monday after plunging again over the weekend. Bitcoin prices have now fallen almost 20% in the past week. At just under $31,000, bitcoin is more than 50% below its record high of near $69,000 from late last year and at its lowest point since July 2021.
Other cryptocurrencies, sometimes referred to as altcoins, have also been hit hard. Ethereum, binance, solana and cardano are all down around 15% in the past week, while Elon Musk’s beloved dogecoin has fallen 10%.
Cryptocurrencies are proving to be just as risky as stocks and subject to the same concerns that drag down the Dow, S&P 500 and Nasdaq.
“Volatile trading of digital assets has not been that unusual in previous years,” said Michael Kamerman, CEO of trading platform Skilling. “Cryptocurrencies increasingly move in sync with technology stocks with investors treating both as risk assets and often retreating to safer corners of the market during bouts of market volatility.”
Kamerman said he remains bullish on bitcoin in the long term. More hedge funds and other large institutions are starting to invest in crypto, and some global central banks are starting to embrace it as well.
But he added that “bitcoin is not immune to the global inflation risk that spreads across most other asset classes. Therefore, we should expect to see the downward trend continue.”
Bitcoin was hit by the same problems that drag stocks down
Fears of inflation, concerns about major rate hikes by the Federal Reserve and worries about a possible economic downturn have rattled Wall Street and sent bond yields soaring.
The 10-year government bond yield is now just above 3.1%, and has more than doubled this year. Long-term bond yields are now at their highest level since November 2018.
The rise in interest rates has also helped lift the value of the dollar, which tends to rise in line with interest rates. The US Dollar Index is now trading near its highest level in twenty years. There is bad news for bitcoin as well, as many crypto supporters point to dollar weakness as a bullish sign for digital currencies.
As rates (and the dollar) continue to rise, some crypto-skeptics believe that the sell-off in bitcoin has only just begun. The Federal Reserve is starting to pull back on monthly bond purchases and other stimulus, which could be bad news for all kinds of speculative assets.
“The dramatic reversal of the Fed’s liquidity … will collapse the pandemic bubble in cryptocurrencies, lost money on tech companies and meme stocks,” said Jay Hatfield, chief investment officer at Infrastructure Capital Management and manager of the InfraCap Equity Income ETF.
Hatfield said he believes bitcoin could fall as low as $20,000 by the end of the year.
The crypto collapse is also hurting several stocks with exposure to the industry. Brokerage Coinbase fell 17% on Monday and is down more than 65% this year. Robinhood, which also allows people to buy and sell some cryptocurrencies, has fallen more than 45% in 2022.
And shares of several cryptocurrency miners, the companies that run servers that solve the complex mathematical puzzles needed to generate new bitcoin and other cryptos, have also fallen. Hive Blockchain (LGBTTF), Marathon Digital Holdings (MARA) and Riot Blockchain (RIOT) are all down between 50% and 60% this year.
The massive decline in these and other technology stocks with momentum is yet another sign of the rapid shift in market mood this year. The CNN Business Fear & Greed Index, which measures seven indicators of market sentiment, is in extreme fear territory.
Investors may continue to avoid volatile cryptos in favor of safe havens such as dividend-paying blue chip stocks.
Traders are “more reluctant to embrace 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 questionable” and that “interest rate hikes are likely to jeopardize the short-term potential for profit” in bitcoin, ethereum and other established cryptos.
