In the wake of the decline in technology stocks on Wall Street, crypto assets have suffered a major crash in recent days. Bitcoin briefly drops below $30,000…
Panic winds in the cryptocurrency market and the NFT! On the heels of a slump in tech stocks on Wall Street since the beginning of the year, crypto assets have suffered a major crash in recent days. After hovering around $40,000 for several months, Bitcoin briefly dropped below $30,000 on May 10, the first since July 2021. Now the peak at $69,000 last November looks good.
In its fall, bitcoin was falling behind other cryptocurrencies, with ether dropping 17% in seven days. The total market value is thus estimated at just over $1,500 billion, compared to $3,000 billion at its peak, according to data from Coingecko, which collects more than 13,000 cryptocurrencies. Among the top 20 cryptocurrencies, almost all of them have been in a three-month downtrend, such as bitcoin and ether, which are down about 25% during this period.
It’s no better on the NFT side, which is also a mess. Proof of this is the most popular group in the sector, Bored Ape Yacht Club, which includes 10,000 unique designs. It lost 35% in one week, according to the OpenSea platform. In just seven days, the average price for a bored monkey has gone from just over $430,000 to nearly $260,000. The situation isn’t much better for CryptoPunks, these little pixelated characters from old games that promoted avatars in NFTs. The latter has fallen by nearly 25% in one week, and even by more than 65% in the last 24 hours.
Cryptocurrencies are now following the stock market
While seeing NFTs following cryptocurrencies in their downfall is not surprising, insofar as these digital assets are backed by the latter, seeing bitcoin and other virtual currencies sink in the wake of tech stocks on Nasdaq is a somewhat more bizarre event, although This sector is used to cycles of volatility.
Until 2020, the price of cryptocurrency was linked to the Wall Street turmoil. But the wider adoption of bitcoin and crypto assets by financial institutions around the world has changed that. And so this digital asset, located on the margins of the global financial system, began to follow the dynamics of the stock market assets of the New York Stock Exchange. As tech stocks that it hosts have been steadily declining since the beginning of the year, cryptocurrencies are following suit.
At the start of the war in Ukraine, the illusion of bitcoin becoming a safe haven persisted for a few days, before finally following the development of stock markets. Moreover, armed conflict in Eastern Europe comes on top of other events of international resonance, such as the recovery of the Covid-19 epidemic in China, increasingly tight monetary policy in the United States or hyper-global inflation. There are several elements that contribute to the creation of a disturbing climate in traditional markets, which are appearing to be more and more anxious. This concern is spreading to other assets, such as cryptocurrencies, that have failed to cope with the current recession.
El Salvador on the verge of bankruptcy?
Besides reducing capital gains for some investors in crypto assets to zero or nearly, this situation may be even more dramatic for countries with strong ambitions in virtual currencies. This is the case of El Salvador, which adopted bitcoin as a legal currency in September 2021, despite pressure from the International Monetary Fund (IMF), which recommended that the country abandon such a project.
Concerns are growing as the bonds mature in January 2023, but with the collapse of the country’s currency reserves, which contain more than 2,000 bitcoins, bondholders are losing confidence and now see that this raises the specter of a default. And for good reason: This Central American country has yet to attract any investors for its government bonds backed by bitcoin.
This was in order to allow access to a billion dollars, in particular to fund the soon-to-be-expired sovereign bond and build “Bitcoin City,” a city backed by the crypto-mining volcano card. However, the President of El Salvador, Nayib Bukele, is continuing the path and has just announced that his country has bought 500 bitcoins at an average price of $30,744, taking advantage of the cryptocurrency’s decline. That still represents $15.3 million.
greater risk aversion
This critical situation could continue for several more months, while technology stocks that surged in the stock market during the health crisis are currently victims of a violent market correction. The Peloton is emblematic of this stock market crash, with its capitalization at $4.3 billion on Wall Street today, compared to about $56 billion at its peak in January 2021.
So the crypto field should continue to suffer for some time, before resuming its trajectory toward new heights. However, the current context hasn’t discouraged Instagram, which has just taken off in the NFTs. But in the current period, with strong geopolitical and economic instability, investors’ risk aversion is particularly strong. As a result, no one is buying cryptocurrency on the downside…except for El Salvador.