Bitcoin is collapsing. Investors are looking for security until the end of the year.

[ad_1]

Crypto markets are increasingly acting like speculative assets, like tech stocks, commodity futures, and anything else related to rapid economic growth and excess liquidity.

Bitcoin and other cryptocurrencies were crashing on Monday, falling in tandem with stocks that were under pressure due to a string of bad news over the weekend.

Bitcoin was down 2.5% to $ 46,100 while Ether, the native token of the Ethereum network, was down 3% to $ 3,800. The Nasdaq Composite Index fell 1.4%.

The positive narrative for crypto becomes increasingly murky with the Omicron variant spreading rapidly and central banks are preparing the market for tighter monetary policies and interest rates in 2022. Another blow came on Sunday as Senator Joe Manchin (DW. Virginia) said he would not do it. supporting Democrats Build Back Better legislation, effectively killing the $ 1.7 trillion package for now.

The tougher outlook prompted Wall Street to cut estimates of economic growth in the United States, with Goldman Sachs lowering its forecast for gross domestic product growth to 2% from 3% for the first quarter, and lowering the outlook for the United States. following quarters.

Newsletter Sign-Up

Le Quotidien du Barron

A morning briefing on what you need to know in the day ahead, including exclusive commentary from the editors at Barron’s and MarketWatch.

The correlation between lax monetary policy and rising crypto prices is based on the idea that investors would rather try their luck on a risky asset like Bitcoin rather than keep money in the bank, earning zero percent. Yet, as the “risk-free” rate increases, so does the opportunity cost of speculation.

Perhaps more than the mathematics behind this compromise is the feeling that 2022 will not be the take-off of the global economy that was expected before the Omicron variant, soaring inflation and a political deadlock in Washington, the Democrats being unable to move the measures forward. that would have been highly stimulating.

Moreover, if Bitcoin is truly a “digital gold”, acting as a store of value and a hedge against the depreciation of “fiat” currencies, it does not act that way. Crypto peaked on November 10 at $ 68,789, according to CoinMarketCap, and has fallen since, despite higher inflation numbers and the prospect of three interest rate hikes in 2022 to fight inflation.

Other cryptos have fallen in bear markets as well, despite Bitcoin’s very different uses and applications. Among them are “smart contracts” and non-fungible tokens, or NFTs, on the Ethereum network, using the Ether token as their currency. Other cryptos are used for international money transfers, supply chain management, gaming, and cross transfers of digital assets or data between different blockchains.

Yet few were spared the massive sale. Solana, the fifth largest crypto by value with a market cap of $ 88 billion, hit a high of $ 259 on November 6. It is now around $ 182. Avalanche, another major token, worth $ 26 billion, is at $ 107, from peaks of around $ 134.

Some of the declines may reflect profit taking after a surge for many cryptos earlier in the year. And not a day goes by without venture capital exploding space; The new venture capital funds raised $ 150 million last week with a “focus on Web 3.0 and blockchain,” according to Fundstrat Global Advisors.

On a much larger scale, NYDIG, the large crypto custodian, asset manager and institutional trading company, recently racked up another billion dollars in funding, valuing it at $ 7 billion. One reason is that NYDIG could help spread Bitcoin to the masses through a partnership with National Cash Register (ticker: NCR), a global ATM company with more than 15,000 banks and credit unions on its network.

“The partnership is expected to bring Bitcoin to more than 650 banks and credit unions, or roughly 24 million new consumers,” Fundstrat said.

Yet, as the macroeconomic climate gets tougher, fewer large-scale investors or individuals might be willing to speculate on the steadily rising prices of Bitcoin and other cryptos.

Investors in the Grayscale Bitcoin Trust (GBTC), one of the largest Bitcoin funds with more than $ 30 billion in assets, are feeling the pain. GBTC recently traded at $ 33.52, a near-record 22% discount from its $ 43 net asset value per share in Bitcoin.

This may sound tempting for Bitcoin bulls, but the rebate may also reflect declining demand for GBTC, as its fees are higher than other publicly traded securities offering Bitcoin exposure, including the ProShares Bitcoin Strategy ETF. (BITO). Investors have other options as well, including companies with large stakes in Bitcoin, such as MicroStrategy (MSTR).

However, as the prices of the underlying digital assets fall, anything that correlates to crypto faces a strong rally until sentiment improves. That might not happen anytime soon, according to Katie Stockton, founder and managing partner of Fairlead Strategies, a crypto research firm.

“Medium-term momentum remains on the downside,” she wrote in a note released Monday. Bitcoin has support of around $ 44,000, she notes, but if that is broken, the next support level of $ 37,000 will likely be tested.

Write to Daren Fonda at [email protected]

[ad_2]