CRYPTOCURRENCIES reeled from a bout of risk aversion in global markets on Monday (Aug 5), at one point sending Bitcoin down more than 16 per cent and saddling second-ranked Ether with the steepest fall since 2021.
Top token Bitcoin traded 13 per cent lower at US$51,182 as of 9.42 am in New York, adding to a 13.1 per cent drop last week that was the worst since the period when the FTX exchange imploded. Ether shed over a fifth of its value before paring some of the slide to change hands at US$2,274. Most major coins nursed losses.
Crypto-related stocks tumbled. Coinbase Global, the largest US exchange, fell more than 20 per cent, Bitcoin proxy MicroStrategy plunged almost 30 per cent, and miners Marathon Digital Holdings and Riot Platforms, slumped 20 per cent and 15 per cent, respectively.
The declines come as a global stock sell-off intensifies, reflecting concerns about the economic outlook and questions over whether heavy investment into artificial intelligence will live up to the hype surrounding the technology. Geopolitical tension is rising in the Middle East, adding to investor skittishness.
Total liquidation in bets on crypto was about US$1.2 billion in the past 24 hours, one of the largest since early March this year with US$922 million and US$183 million in bullish and short positions respectively, according to Coinglass.
US exchange-traded funds for Bitcoin suffered their largest outflows in about three months on Aug 2. One question is whether the products will attract dip buyers when they resume trading, or witness a deeper efflux.
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Overall, Bitcoin and Ether investment products saw outflows of US$400 million and US$146 million, respectively, in the week ended Aug 3, according to CoinShares data.
Carry trade
Digital assets are a victim in part of the unwinding yen carry trade, as speculators adjust to higher interest rates in Japan, according to Hayden Hughes, head of crypto investments at family office Evergreen Growth.
“Those investors are also fighting a drastic increase in hedging costs based on the volatility in the US dollar-Japanese yen trading pair,” Hughes said.
Bitcoin has been buffeted by a range of factors since hitting a record of US$73,798 in March. That includes US political flux as pro-crypto Republican Donald Trump and Democratic opponent vice-president Kamala Harris – who has yet to detail a digital-asset policy stance – lock horns in the presidential race.
Also hanging over the market are possible sales of Bitcoin seized by governments and the risk of a supply overhang from tokens returned to creditors through bankruptcy proceedings.
Fed outlook
Bond traders have amplified bets on US interest-rate cuts beginning in September to support economic expansion. The prospect of less restrictive monetary policy is actually “a good thing for crypto,” argued Sean Farrell, head of digital-asset strategy at Fundstrat Global Advisors.
The Bitcoin retreat at its nadir on Monday left the token at levels last seen in February. Ether, meanwhile, earlier fell back to prices previously seen at the turn of the year. Similar to Bitcoin, one unknown is how investors in new US spot-Ether ETFs will react.
Justin D’Anethan, head of Asia-Pacific business development at market maker Keyrock, said the crypto rout appeared somewhat Ether-led, flagging social-media rumours of institutional-selling of Ether-related assets.
Khushboo Khullar, a venture partner at Lightning Ventures, which invests in Bitcoin-linked companies, said the broad stock slump had caused some “panic,” spurring investors to rush for liquidity to settle margin calls. She argued the crypto retreat is a “fine buying opportunity.”
“Technical indicators however are now showing as oversold, as well as the Crypto fear and Greed index flashing ‘Fear’, which is usually a sign of a bottoming of the price,” said Simon Peters, crypto analyst at eToro. “It is possible we could see a rebound from here over the coming days, as to how high the price will rebound we have to wait and see.”
Bitcoin’s year-to-date advance has moderated to approximately 21 per cent, compared with an 18 per cent climb in gold and an 8 per cent jump in a gauge of global stocks. BLOOMBERG
