A week into the stablecoin implosion, the crypto market holds its bearish course.
This week, the bitcoin price dropped 6%, and other major coins followed suit. Ethereum’s price is down 11%, BNB5%, dogecoin 3%, cardano 15% , terra’s luna 80%, XRP10%, solana 16%.
The turning point was yesterday when Target TGT and Walmart WMT released their earnings. After reporting dismal results, America’s retail giants nosedived 25% and 18% respectively—suffering the biggest one-day drop since 1987’s Black Monday crash.
“US inflation being this high and moving so quickly, both in food and general merchandise, is unusual… We knew that we were up against stimulus dollars from last year, but the rate of inflation in food pulled more dollars away than we expected as customers needed to pay for the inflation in food,” said Walmart CEO Doug McMillon.
On the news, the S&P 500 and the Nasdaq indexes crashed 4% and 5%, erasing all their gains for the week. And bitcoin retreated to just over $28,700—the lowest level since the TerraUSD UST – Luna LUNA collapse.
[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.]
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This just reaffirms the thesis I’ve been banging the drum on for the past two months: contrary to its “financial hedge” proposition, crypto has matured into a high beta version of stocks. As I wrote:
“If recent market moves are any indication, crypto is largely at the mercy of other risk assets and how they’ll fare during the Fed’s battle with inflation.
That’s because, despite its store of value promise, crypto is still a high beta version of stocks. And its “reactivity” is only growing stronger. In a recent analysis, Coindeks reports that bitcoin’s correlation to the Nasdaq is the highest on record.”
There are a couple of reasons for this.
First, over the past year, big money has taken over the crypto market. According to Morgan Stanley MS , institutional investors now account for more than two-thirds of trading volume in crypto.
“Retail investors are no longer the dominant crypto trader. The largest proportion of daily crypto trading volumes is from crypto institutions, much of which comes from them trading with each other. For example exchanges, custodians, and crypto funds. Retail traders were dominant around four years ago, when bitcoin traded below $10k. We think the increased involvement of institutions, which are sensitive to availability of capital and therefore interest rates, has contributed in part to the high correlation between bitcoin and equities,” Morgan Stanley wrote in a note.
Second, as markets turn south, institutional investors dump crypto assets the fastest due to their high liquidity. “For institutions it is easier to liquidate their crypto positions especially with the 24/7 access to their capital than some other positions, so they tend to be the first positions closed out,” explained Howard Greenberg of Prosper Trading Academy.
Institutional adoption has become a double-edged sword for crypto. It poured more capital into this market during a bull market, but at the same time, it subjected crypto to the “rules” traditional assets abide by in a bear market.
As, Bob Iaccino, chief strategist at Path Trading Partners, said, “This is the nature of tradable assets… when assets are sold, all assets are sold.”
And in such an indiscriminate sell-off, by default, the most speculative assets suffer the most. In fact, one of the most respected crypto analysts, Rekt Capital, thinks smaller altcoins will shed 90% of their value if this bear market continues.
“If BTC loses its macro range low [around $28,000], that would confirm more downside in the Crypto market. Which could enable altcoins to follow their standard bear market correction of over 90%,” Rekt Capital tweeted yesterday.
So if inflation keeps doling out new highs, we are likely to see more selling in traditional risk assets, and by extension, even more selling in cryptos.
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