Cryptocurrencies have lost $1.6 trillion in market value since hitting an all-time high seven months ago, as interest rate hikes caused investors to flee the riskiest corners of global financial markets.
The market value of the top 500 digital assets has fallen 50 percent to $1.6 trillion since the record high hit in November 2021, according to CryptoCompare data compiled by the Financial Times. Bitcoin, the world’s largest digital token, has also lost half of its value during this period.
The crypto plunge comes as investors exit speculative financial assets after a spate of rate hikes by global central banks unleashed markets. Other risky assets like shares of loss-making companies and junk bonds have also taken a hit, but crypto markets have taken a particularly hard hit.
“This is a risk for all asset classes, including crypto,” said Daniel Ives, strategist at Wedbush Securities, who added that there was “nowhere to hide.”
The crypto market thrived as central banks pushed interest rates to record lows at the height of the coronavirus crisis, sending traders hunting for high-yielding assets. However, a major sell-off in global government bond markets this year has pushed yields higher, increasing the potential returns investors can earn from holding high-grade debt.
Bitcoin is trading at its lowest since July 2021, but the losses in the broader crypto market are even bigger. An FT Wilshire gauge that tracks the top five non-bitcoin coins is down nearly 70 percent from its recent high. Once fast-growing coins like Solana, billed as an alternative to the Ethereum network, have quickly lost value.
Listed shares of crypto-exposed companies have also plummeted. MicroStrategy, run by crypto advocate Michael Saylor, is down 55 percent so far this year. Meanwhile, Coinbase is down 65 percent in 2022, falling below $100 on Monday for the first time since the New York Stock Exchange went public last April.
Bitcoin mining companies like Bitfarms and Marathon Digital Holdings, which use powerful computers to solve puzzles for which they are compensated in digital tokens, have also fallen sharply.
The pullback also underscores how closely tied the performance of Bitcoin and other cryptocurrencies is to the US stock market. The correlation between bitcoin and the Nasdaq Composite, a measure that caters to America’s big tech companies, has reached record highs, according to data provider Kaiko.
“Some investors play crypto like a hedge against inflation, but it trades like the Nasdaq’s Siamese twin,” Ives said.
Source: Crypto News Austria