Bitcoin plunges 9%, Ethereum is down 12% as analysts link selloff to stocks volatility, hawkish Fed
New York (Jan 21) Crypto selloff accelerated on Friday, with Bitcoin hitting 5-month lows to trade below $40,000 and Ethereum dropping to four-month lows to trade below $3,000.
Analysts are seeing investors dump crypto along with tech stocks amid an exit from risker assets ahead of Federal Reserve rate hikes.
Bitcoin was down more than 9% on Friday, trading at $38,668.39, which is 44.4% lower than its November all-time high of $69,000. Year-to-date, Bitcoin is down more than 20%.
Ethereum, the world's second-largest cryptocurrency, plummeted more than 12% and was last trading at $2,820.98, which is 42.8% lower than its all-time high of $4,878. Year-to-date, Ethereum is down nearly 30%.
The poor start to the year was marked by a hawkish shift in the Federal Reserve's rhetoric, with markets now projecting four rate hikes and a balance sheet runoff this year.
In response to this, U.S. Treasury yields have been climbing, triggering a broader selloff in stocks and cryptocurrencies. Nasdaq is currently trading down 0.7%, putting the index on track for its worst week since October 2020. Year-to-date, Nasdaq is down 9.7%.
"Crypto just could not hold up in the face of continue smashing of equity markets (especially tech)," said InTheMoneyStocks.com chief market strategist Gareth Soloway. "The deleveraging I have talked about since late 2021 continues. Key support on $BTC is $37,500 and then $36,500.”
Even crypto bulls are not estimating a rebound until stocks recover. Galaxy Digital founder and crypto billionaire Mike Novogratz tweeted late Thursday: "Crypto will have a hard time rallying until stocks find a base. That said, crypto already had a decent selloff and is running into some buying support."
Novogratz highlighted the steep drop in the Russell index, which is down more than 10% year-to-date. "This is now a bear market. Sell rallies. Don't buy dips," he said in another tweet.
1) The Russel index broke a major support and today’s roll over confirmed it’s broken. This is now a bear market. There is 1.2tr of bad equity longs above the market.
Sell rallies. Don’t buy dips. https://t.co/7TA6GWhIao— Mike Novogratz (@novogratz) January 20, 2022
Other news weighing on the crypto market was a proposal by Russia's central bank to ban crypto mining and trading. But analysts say the impact of this should be limited.
"Russia may be an important location for mining but not trading. And I think Russia already bans the use of crypto as money -- i.e. use in payments. I suspect many Russians who hold crypto are offshore accounts. But I am hesitant to push the line hard because then is says there is a rhyme and reasons to crypto movement," said Bannockburn Global Forex chief market strategist Marc Chandler.
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