Bitcoin splits from global markets to slide all on its own
THE distress spread across cryptocurrencies by the meltdown of Sam Bankman-Fried’s FTX is fracturing the link the tokens once had with other financial assets, a sign that Bitcoin’s influence on global markets may be diminishing.
Bitcoin dropped 23 per cent last week, its worst tumble since June, at the same time as the S&P 500 Index rose 5.9 per cent. That helped weaken the correlation between the two to the lowest this year, based on a 20-day study. The performance gap between Bitcoin and the Nasdaq has hit the widest since 2020.
And while major cryptocurrencies turned higher Monday (Nov 14), the gains did little to lift broader market sentiment, damped by comments from Federal Reserve Governor Christopher Waller that policymakers had “a ways to go” with interest-rate hikes.
“That idea of using crypto as a high-beta play on risk is fading, because there are easier ways to play that elsewhere that don’t suffer from the same systemic risk,” said Chris Weston, head of research at Pepperstone Group. “This is a structural issue, it’s about the actual architecture of the crypto system and the confidence you can have in that. Who’s next is the question on many people’s lips.”
The idea that Bitcoin can form a worthwhile part of a diversified portfolio of risk assets is fraying, with massive losses generated by the revelation that even FTX, until recently considered one of the most blue-chip names in crypto, was unsound. That’s a far cry from the optimism at the start of this year, when Bridgewater estimated that 5 per cent of Bitcoin was held by institutional-level investors.
The latest crypto rout came as investors were already souring on the space and as declines in prices shrank the footprint of virtual currencies.
The total market value of all tokens has dropped more than 70 per cent from a record peak of just under US$3 trillion set a year ago, said the CoinGecko website. The current worth of US$843 billion, as assessed by the tracker, is now less than 1 per cent of the world equities market. Stocks are down a still sizable 16 per cent over the period, but a resurgence of broad risk appetite, driven by hopes for a slower pace of central bank interest-rate hikes, sent equities up by more than US$13 trillion since they bottomed out Oct 12.
The stark contrast between sliding cryptocurrencies and ebullient stocks underscores how rapid the turnaround has been for an asset class that was close to winning over mainstream investors less than a year ago.
Back in 2021, JPMorgan Chase & Co strategist Nikolaos Panigirtzoglou wrote Bitcoin could theoretically reach US$146,000 in the long term by crowding out gold. Last week, he said the current upheavals could send it as low as US$13,000. A PwC survey in April found that 42 per cent of crypto hedge funds were predicting Bitcoin to trade between US$75,000 and US$100,000 by the end of 2022. BLOOMBERG
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