Equities trying to stabilize following crypto’s wild ride
The past 24 hours have been incredibly intense in the global financial markets. Frantic selling in cryptocurrencies wiped out half a trillion dollars from the sector’s market cap at one point before briefly recovering later in the day. US and global stocks pulled back for a third straight day. Commodities also plunged with Brent crude declining more than 5% from Tuesday’s highs. Meanwhile, the dollar bounced back after testing a three-month low.
Today’s session seems calmer so far with bitcoin trying to stabilize near $40,000, but many other digital assets falling double digits. Asian equities are trading mixed as US equities try to find direction following the FOMC minutes that hinted at a possible discussion on scaling back asset purchases.
The chaotic pullback in bitcoin and other digital assets was first driven by Elon Musk a week ago when tweeted that Tesla will no longer accept bitcoin as a payment, and the catalyst for the second leg lower was driven by China’s financial industry groups banning financial institutions and online payments channels from dealing with cryptocurrencies. However, the magnitude of the move is primarily driven by investors being forced to close leveraged and speculative positions.
While the debate about future of digital assets will continue for long time, the latest plunge reminds investors that cryptos are not the best store for value or a realistic functional medium of exchange.
My concern recently was a sharp selloff in cryptocurrencies could extend to other asset classes given how big this market had become. Looking at yesterday’s price action I should say the crypto world did indeed move other assets classes.
The S&P 500 kicked off the session sharply lower at yesterday’s open as cryptos were reaching the lows of the day but started recovering as the bitcoin rebounded strongly from the trough. While digital assets cannot be characterized as a systemic risk to the global financial markets, it is undoubtedly impacting sentiment.
So, if you’re are a trader in equities, commodities, or currencies, you need to keep a close eye on cryptocurrencies.