The cryptocurrency selloff is part of a broader global pullback from riskier investments.
Bitcoin plunged to a level last seen in July 2021, as part of a broader pullback in cryptocurrencies triggered by a global flight from riskier investments.
The world’s largest digital token fell as much as 4.6% on Monday and was trading at around $32,800 as of 7:07 a.m. in New York. Most of the major virtual currencies were under pressure over the weekend and the bearish mood continued into Monday. Stocks in Asia and Europe also fell, with the Nikkei gauge down 2.5% and the Stoxx Europe 600 index down 2%. US stock futures were also in the red.
Monetary policy tightening to combat runaway inflation and dwindling liquidity are turning investors away from speculative assets in global markets. Adding to the caution around digital assets, the value of TerraUSD or UST, an algorithmic stablecoin that aims to maintain a one-to-one parity with the dollar, slipped below $1 over the weekend before recovering .
“In light of fears of rising inflation, most investors have taken a risk-averse approach – selling stocks and cryptocurrencies alike to reduce risk,” said Darshan Bathija, CEO of cryptocurrency exchange Vauld. , based in Singapore.
Monday’s selloff was widespread across the crypto universe, with Cardano down 8.4% and Polkadot down 6.7%, data compiled by Bloomberg shows.
Rising interest rates are giving individual and institutional investors pause to think about the outlook for the crypto market, according to Edul Patel, CEO of Mudrex, an algorithm-based crypto investment platform. Bitcoin’s 29% drop in 2022 compares with a more than 10% decline in global stocks and bonds, and a 2.5% gain in gold.
“The downtrend is likely to continue for the next few days,” he said, adding that Bitcoin could test the $30,000 level.
Bitcoin’s recent decline puts it at risk of falling firmly out of the range it has been trading in in 2022, completely reversing the most recent bull run that took the token to a record high of nearly $69,000 in November. With its 40-day correlation to the benchmark S&P 500 stock index at a record 0.82, according to data compiled by Bloomberg, any further hit to equity sentiment would risk dragging Bitcoin down as well.
A correlation of 1 means that two assets move in perfect unison; a reading of -1 means they are moving in opposite directions.