Bitcoin‘s value plummeted on Monday as investors shrank their exposure to the possibility of a worldwide stock market crash.
Many have claimed that bitcoin is best used as a safe-haven asset, but this narrative may be shifting as consumers discover that the price of bitcoin typically falls in conjunction with larger losses in risk assets. In accordance with the stock market’s risk-on surge, Bitcoin’s rise has corresponded with a decrease in the value of the cryptocurrency in September.
On Monday, the price of bitcoin dropped by as much as 10%. According to Coin Metrics, it was recently worth $43,790.25 but is now down over 7%. Ether, along with other crypto-related equities, fell by 8.5% to $3,060.80 on the day, reflecting the overall crypto market’s woe.
While Coinbase and Microstrategy both fell by a combined 3.5%, Square fell by just 2%. Riot Blockchain declined by 6%, while Marathon Digital dropped by 5%.
“This sell-off is the continuation of a well-established pattern where traders sell their riskier assets to cover margin calls or stay on the sidelines until markets calm down and they feel more comfortable getting back into riskier positions,” Valkyrie Investments CEO Leah Wald told CNBC. As U.S. firms also hint their earnings calls will disclose bad results, this feels like the time for Bitcoin to establish itself as a safe haven or as digital gold.
The Leuthold Group’s senior investment strategist, Jim Paulsen, stated that while bitcoin tends to decline along with the broader markets, that doesn’t imply it has any link to stocks. He went on to add that correlation is “essentially nonexistent.
I agree that bitcoin typically goes down with equities – but I think it goes down differently than stocks,” he told. Compared to the rest of the portfolio, it’s a great diversifier.” This can help to reduce volatility, but it doesn’t rule out participation during risk-free times. “Safe haven” and “diversifying” are not synonymous terms.
According to Paulsen, one of the reasons bitcoin has been dubbed a safe haven is because of its original white paper’s description of it as a currency.
According to the dollar’s status as a safe haven at periods when people’s attitudes toward risk are low, “it’s looked at as a safe haven,” he added. “However, this is the farthest thing imaginable from a medium of exchange. Despite its name, it is not a form of money.
However, gold futures increased a modest 0.8% to $1,765.40/oz as bitcoin fell.
Investors are fleeing China’s property market because of a shakeout linked to heavily indebted developer Evergrande, which they believe may spread risk. Investors are also watching the Federal Reserve to see whether it signals its willingness to start withdrawing monetary support from the economy. The two-day meeting of the Fed will get underway on Tuesday.
Since the beginning of the “Covid era,” according to Tom Lee of Fundstrat Global Advisors, the sell-off is demonstrating how much investors need 24-hour liquidity.
Earlier this month, the price of bitcoin surpassed the psychological barrier of $50,000. It is now trading below its 50-day moving average of $46,514, which analysts and traders use to gauge whether the price will move up or down, and to gauge the medium-term trend.
For now, investors should “wait until tomorrow’s close to decide whether to cut exposure and manage the risk of a more extended drop,” Fairlead Strategies managing partner Katie Stockton advised CNBC.
The crypto market’s fall coincides with growing skepticism regarding stablecoin regulation. According to a story published over the weekend by The New York Times, the Financial Stability Oversight Council may label them as systemically dangerous. As a result, they and their operators may be subject to stricter regulations.
Although a study on stablecoins has yet to be completed by the President’s Working Group on Financial Market, it’s anticipated that the Federal Reserve will make public a document on central bank digital currencies later this month, which may include discussion of stablecoin dangers.
Source : CNBC