The world’s most valuable cryptocurrency fell 10% on Monday after falling again over the weekend. Bitcoin prices are now down nearly 20% in the past week. At just under $31,000, bitcoin is more than 50% below its record high near $69,000 late last year and at its lowest level since July 2021.
Other cryptocurrencies, sometimes referred to as altcoins, have also been hit hard. Ethereum, binance, solana and cardano are down about 15% in the past week, while Elon Musk’s beloved Dogecoin is down 10%.
Cryptocurrencies have proven to be just as risky as stocks and subject to the same fears that cause the Dow, S&P 500 and Nasdaq to fall.
“Volatile trading in digital assets was not unusual in previous years,” said Michael Kamerman, CEO of trading platform Skilling. “Cryptocurrency movement is increasing in tandem with tech stocks as investors treat both as risky assets, often relegating 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 cryptocurrencies, and some global central banks are starting to embrace it as well.
But he added, “Bitcoin is not immune to the risk of global inflation spreading across most other asset classes. So we should expect the downtrend to continue.”
Bitcoin ran into the same problems that drove stocks down
Inflation fears, concerns about large interest rate increases by the Federal Reserve and tension over a possible economic slowdown have rocked Wall Street and sent bond yields higher.
The 10-year Treasury yield is now hovering above 3.1%, having doubled this year. Long-term bond yields are now at their highest level since November 2018.
The rise in yields also helped lift the value of the dollar, which tends to rise along with interest rates. The US dollar index is now trading near its highest level in twenty years. This is bad news for Bitcoin as well, with many crypto proponents pointing to dollar weakness as a bullish sign for cryptocurrencies.
With prices (and the dollar) continuing to rise, some crypto skeptics believe the bitcoin selloff is just beginning. The Federal Reserve is starting to roll back monthly bond purchases and other stimulus which could be bad news for all types of speculative assets.
“The dramatic reversal of Fed liquidity … will lead to the collapse of the pandemic-era bubble in cryptocurrencies, money-losing tech companies and meme stocks,” said Jay Hatfield, chief investment officer at Infrastructure Capital Management and director of the InfraCap Equity Income ETF.
Hatfield said he believes bitcoin could drop to $20,000 by the end of the year.
The cryptocurrency crash is also hurting many stocks with exposure to the industry. Coinbase is down 17% on Monday and down more than 65% this year. Robinhood, which also allows people to buy and sell some cryptocurrencies, fell by more than 45% in 2022.
Many crypto miners, the companies that operate servers that solve the complex mathematical puzzles needed to create new bitcoins and other cryptocurrencies, also plummeted. Blockchain cell (HVBTF)And Digital Holdings Marathon (Mara) And Blockchain riot (riot) They are all down between 50% and 60% this year.
The massive decline in these and other momentum tech stocks is another sign of the rapidly shifting market mood this year. The CNN Business Fear and Greed Index, which measures seven indicators of market sentiment, is in the area of intense fear.
Investors may continue to avoid volatile cryptocurrencies in favor of safe havens, such as dividend-paying blue chips.
Traders are “more reluctant to embrace the additional risks associated with the crypto space,” said Tammy Da Costa, an analyst at DailyFX, in a report.
It added that “the future of individual coins or tokens remains uncertain” and that “high interest rates are likely to jeopardize the short-term profit potential” of Bitcoin, Ethereum and other cryptocurrencies.