Crypto Market Capitalization Erodes by over $1trillion

Bitcoin’s drop from November’s peak has taken off more than $600 billion in market value, while the aggregate crypto market has lost more than $1 trillion. Recently, there has been just one constant for Bitcoin: drop after decline after decline. And the superlatives have accumulated at a breakneck pace.

With the Federal Reserve preparing to remove support from the market, riskier assets have slumped globally. Bitcoin, the world’s biggest digital asset, fell more than 12% on Friday, falling below $36,000 for the first time since July. Since November’s high, it has lost approximately 45% of its value. Other digital currencies have taken a similar, if not worse, hit, with Ether and meme coins seeing comparable drawdowns.

Bitcoin’s drop from November’s peak has taken off more than $600 billion in market value, while the aggregate crypto market has lost more than $1 trillion. While both Bitcoin and the overall market have had considerably higher percentage declines, this is the second-largest loss in dollar terms for both, according to Bespoke Investment Group.

“It illustrates the magnitude of value destruction that percentage drops may conceal,” Bespoke analysts noted in a report. “Crypto is, of course, subject to these kind of selloffs given its inherently greater volatility in the past, but given how enormous market capitalizations have grown, volatility is worth considering both in raw dollar terms and in percentage ones.”

With the Fed’s plans shaking both cryptocurrencies and stocks, a recurring narrative in the digital-asset world has emerged: cryptos have twisted and turned almost identically to equities.

“Crypto is responding to the same trends that are affecting risk markets internationally,” said Stephane Ouellette, CEO and co-founder of institutional crypto platform FRNT Financial.

“Unfortunately for certain established projects like BTC, there is so much cross-correlation across the crypto asset class that it is nearly guaranteed that it will collapse, at least temporarily, as a result of a larger altcoin value contraction.”

Crypto-related stocks also fell on Friday, with Coinbase Global Inc. plunging over 16 percent at one point and plummeting to its lowest level since its initial public offering in the spring of 2021, according to Bloomberg data. MicroStrategy Inc. fell 18 percent after the Securities and Exchange Commission stated the company’s unofficial accounting procedures cannot account for Bitcoin’s rapid movements. Due to the business software company’s Bitcoin holdings, its stock has essentially become a proxy for the digital commodity.

Meanwhile, according to persons familiar with the topic, the Biden administration is prepared to unveil a first government-wide strategy for digital assets as soon as next month and charge federal departments with examining the dangers and possibilities they provide. Antoni Trenchev, co-founder and managing partner of Nexo, cited Bitcoin’s link to the technology-heavy Nasdaq 100, which is now around a decade high.

“Bitcoin is under attack from a surge of risk-averse attitudes. Keep a watch on established markets for further clues,” he said. “There is tangible fear and discomfort among investors.”

Consider the link between Bitcoin and Cathie Wood’s ARK Innovation ETF (ticker ARKK), which has become the epidemic poster child for speculative risk-taking. This association is over 60% year to date, compared to approximately 14% for gold, according to Katie Stockton, founder and managing partner of Fairlead Strategies, a research organization specializing in technical analysis.
It’s “reminding us to see Bitcoin and other cryptocurrencies as risk investments rather than safe havens,” she said.

Meanwhile, Coinglass, a cryptocurrency futures trading and information platform, said that over 239,000 traders had their positions cancelled in the last 24 hours, with liquidations reaching over $874 million.

While liquidations have increased significantly, they are still relatively low in comparison to prior drops, according to Noelle Acheson, head of market research at Genesis Global Trading.
Acheson notes that Bitcoin’s one-week skew, which measures the cost of bearish options relative to bullish options, jumped to over 15% on Wednesday, up from an average of approximately 6% over the previous seven days.

“This indicated an increase in pessimistic sentiment, consistent with general market jitters in light of present macroeconomic uncertainties,” she added.

Kara Murphy, chief investment officer at Kestra Investment Management, said that although cryptocurrencies have a life of their own, the current correction is sensible.

“It seems reasonable that if individuals begin to retrench a little bit and seek something more stable, they would gravitate away from crypto,” she said. “On the edge, as people become more risk apprehensive, cryptocurrency will suffer.”