Rising interest rates amid sluggish growth have turned investors away from riskier assets including bitcoin, which has fallen to a year-to-date low.
Bitcoin fell to a level not seen since July last year, falling below $33,000. Meanwhile, Ethereum also slipped to a low not seen since last February, trading below $2,390.
This sentiment was also reflected in the greater crypto markets, whose total market capitalization has fallen 4.6% in the past day to $1.6 trillion.
According to Matt Dibb, COO of Singapore-based crypto platform Stack Funds, this rout was partly due to notoriously low liquidity in the crypto market over the weekends.
Investors still view crypto as ‘risky’
“I think everything within crypto is still classed as a risk asset, and similar to what we’ve seen with the Nasdaq, most cryptocurrencies are getting pummeled,” he said.
While globally, bonds and stocks have fallen 10% this year, bitcoin’s 27% decline is much more in line with the tech-heavy Nasdaq’s 22%.
Correlations between bitcoin and riskier assets like tech stocks have risen to record levels this year, diminishing the argument that bitcoin can be utilized as a hedge against inflation.
While rising inflation prompted the US Federal Reserve to raise interest rates, growth remains constrained by supply chains still weakened by the pandemic, not to mention the Russian invasion of Ukraine.
These factors, in addition to ebbing liquidity and slumping equity markets, have hurt the outlook of more speculative assets including crypto in the near term.
“The downtrend is likely to continue over the next few days,” said Edul Patel, CEO of algorithm-based crypto investment platform Mudrex, who believes bitcoin could test the $30,000 level. .
Terra stablecoin losing peg
Another immediate influence on this weekend’s slide was algorithmic stablecoin Terra USD (UST) briefly losing its peg to the dollar. The novel way in which Terraform Labs maintains the peg was called into question, which may have contributed to the slide.
However, plans to build a $10 billion reserve of bitcoins to back up the stablecoin means that volatility in the UST could potentially spill over into bitcoin markets.
While the stablecoin recovered, the price of Terraforms Labs’ cryptocurrency LUNA plunged nearly 25% over the weekend.
