$1.4 trillion cryptocurrency crash not over yet

A cryptocurrency crash sparked by a sell-off of risk assets has wiped well in excess of $US1 trillion off digital currencies and the bloodbath may not be over.

A crypto crash has wiped well in excess of $1 trillion off digital currencies.

A cryptocurrency crash sparked by a sell-off of risk assets has wiped well in excess of $US1 trillion ($1.39 trillion) off digital currencies, with leader bitcoin plunging 50 per cent in a matter of weeks. But the bloodbath may not be over, with some analysts warning a buyer’s strike could plunge the knife in further.

Bitcoin hit an all-time high of $US69,000 in November but has tumbled since, falling as low as $US34,000 over the weekend following a painful 17 per cent drop over the week.

The digital asset looked to be holding at support levels but there was a firm downtrend that could see it drop below $US30,000, Pepperstone head of research Chris Weston told The Australian.

“It’s difficult to say where the support is when there’s a buyer’s strike in the market. It’s just going down and down, and you’ve got to ask yourself, why would you buy now?

“You just don’t buy bitcoin when it’s going down. The best time to buy bitcoin is when it’s going up. It’s a momentum vehicle: you buy it when it starts to go up and it’s making higher highs and higher lows. Then everyone starts feeling a bit more positive, you get all the FOMO money and the crowds really step in. You don’t buy when it’s going down; you wait for the price to stabilise.”

If bitcoin did drop below $US30,000, there could be firm support at $US28,000, he said.

“That’s where we might see some serious buying activity like we did mid last year.

“A break below $US30,000 would be interesting in itself, but at the moment it’s like catching a falling knife trying to make an assumption of whether it’s at value. We don’t know what value is; these (currencies) are all momentum plays and momentum is firmly to the downside right now,” he said.

Henrik Andersson, chief investment officer of Melbourne-based crypto investment fund Apollo Capital, said the sell-off was part of a global macro trade.

“We’re seeing global assets sell off amid tightening monetary policy policy settings from central banks. The market is expecting interest rate hikes from central banks and this has put pressure on stockmarkets around the globe as well as on crypto prices.

“As well as that, crypto markets have done tremendously well so there’s an element of profit-taking after that strong period. That’s nothing new to the market; we’ve seen those kind of cycles in the past and it’s natural for investors to take profits.”

Mr Weston echoed these comments, saying the sell-off was a macro play rather than anything to do with the crypto adoption story.

“Some people are very cynical about it as an inflation hedge, but I think it’s pretty clear that they’re looking at the wrong type of inflation. It’s not about realised inflation, it’s not about the CPI prints we’re seeing at the moment which, of course, are very high. It’s about expected inflation, it’s about forward inflation swaps. And that’s come off about 40 basis points since November, which correlates really strongly with bitcoin’s moves since then.

“The market genuinely believes that the Fed will calm inflation through front-loading rate hikes – that’s what we’re discounting. So inflation expectations have come down and crypto has moved pretty much in line with that.

“Typically with big crypto drawdowns, the bigger coins, bitcoin and ethereum, tend to outperform the high beta altcoins.

“That hasn’t been happening this time. They’ve all been moving in parallel,” Mr Weston noted.

Mr Andersson said the long-term outlook for crypto was positive, in part due to interest in Web3, a decentralised internet underpinned by cryptocurrency.