Bitcoin is trading at $32,500, down about 6% on the day according to Coin Metrics. Most other cryptocurrency assets are falling with it, including ether, which is trading 9.5% lower at about $2,150.
This is because the risk in the bitcoin market is going to be at high risk because of the global pandemic. And it is very much possible that the entire world is going to do into lockdown because of the delta variant of the coronavirus that had been first found in India. This variant is said to be more contagious than the other variants of the coronavirus and it is wreaking havoc in the UK.
Bitcoin has struggled to reclaim its May highs. Its price has been hovering in the $30,000 range, down from the all-time high of $65,000 it reached in April. The main problem started when Tokyo declared a state of emergency because of the pandemic.
“We’re consolidating in here between [$30,000 and $35,000]. What we’re seeing is Asia sells it off, and then the U.S. buys it back,” Galaxy Digital CEO Mike Novogratz said Thursday on CNBC’s “Squawk Box.” “China has declared war on crypto as part of this broader cold war that we’re getting into, and so I think we’re still digesting that.”
On Tuesday, China’s central bank called for another shutdown of a company that “was suspected of providing software services for virtual currency transactions.”
“There’s a lot of ownership correlated with other assets, right? So if you’re a hedge fund and you’re getting whacked in your rate position and your equity position and your oil position, you’re probably going to sell some of your cryptos as well,” said Novogratz, a longtime crypto investor. “It just takes a while for it to build a more diverse investor base.”
The cryptocurrency market as a whole is in the red after equities, and momentum stocks in particular, had a terrible week of trading. Investors have been shifting their focus to cyclical and value stocks as the yield on the 10-year U.S. Treasury bill has risen to start 2022. After closing 2021 at 1.5%, the 10-year yield soared as high as 1.8% on Monday.
Over the past three months, “we’ve seen bitcoin behave like a risk asset numerous times,” said Noelle Acheson, head of market insights at Genesis. Bitcoin falls in value if market anxiety rises. Evidence suggests that the 10-year yield increase has scared away some investors, which is bad news for assets with volatile cash flows.
Bitcoin, in contrast to many assets that have been tarnished by this brush, is liquid and can therefore withstand more selling pressure without suffering significant losses. In November, Bitcoin’s price soared to around $69k after a scorching inflation report revealed the largest increase in consumer prices in 30 years. That number prompted a rush towards inflation protection assets like bitcoin and gold.
Now more than ever, opinions are divided on whether or not bitcoin is a good inflation hedge, due to the way it has traded in tandem with equities. Goldman Sachs predicted last week that bitcoin would overtake gold in value, with the price eventually reaching $100,000.