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Key takeaways
- Fundstrat’s head of digital asset strategy said the weakness in cryptocurrencies was total, as crypto traders were “leading off” the stock sell-off.
- But there is a counterpoint of view: Interactive Brokers’ chief strategist said that Bitcoin’s decline was the “direct driver” of Thursday’s intraday reversal in the stock market.
Have you seen the Spider-Man meme? You know – the one where two cartoon Spider-Men point at each other?
This may be a metaphor for the mood in risky assets these days, with some experts suggesting that stocks are to blame for the weakness in cryptocurrency markets, while others argue that cryptocurrencies are impacting stocks. Regardless of who was right, investors’ reaction to the excesses in both may not bode well for either.
The S&P 500 and the tech-heavy Nasdaq rebounded slightly on Friday, but currency markets continue to bleed. Bitcoin’s price has fallen nearly 8% in the past 24 hours, breaching the $81,000 level, approaching its lowest levels since April so far.
Chief strategist at Interactive Brokers suggested on Friday that yesterday’s intraday pivot in broad market indices occurred when bitcoin, which is being used as a “proxy for speculative fever,” began falling below $90,000.
Why is this important to investors?
Cryptocurrencies are sometimes described as a risky asset; Other times, it is viewed as a hedge. Whatever your position, the recent decline in the price of Bitcoin, the leading cryptocurrency, has investors debating the question anew, with some saying traders view it as a bearish stock, while others see the diluted outlook for tech stocks weighing on all risk assets.
“I wouldn’t say Bitcoin was the reason for the big intraday reversal. Bitcoin was the immediate catalyst,” Steve Sosnick said in an interview with CNBC, explaining that algorithmic traders use it as a “leader.”
Fundstrat’s head of digital assets, Sean Farrell, in a note on Thursday felt otherwise about the decline in cryptocurrency prices. “We were just riding high on the equity sell-off caused by doubts about the sustainability of AI CapEx and possibly a ‘Fed mistake.’ (Investors are closely watching the possibility of a rate cut at the Fed’s December meeting, with concern that it could impact markets recently.) He added that stocks moving lower would act as a headwind for coin prices.
In October, cryptocurrencies suffered the largest liquidation event in their history, when $19 billion was wiped out of positions between October 10 and 11. The problem was leverage, the use of borrowed money to inflate returns. This seems to have shaken confidence in the cryptocurrency markets. Meanwhile, bubble talk around artificial intelligence, and whether the rally in related stocks has reached unsustainable levels, has weighed on stocks, with major US indexes at risk of recording their worst week since early October.
Almost all of the top 100 cryptocurrencies by market cap have fallen alongside Bitcoin over the past 24 hours, according to cryptocurrency research platform Messari. Altcoins such as Ethereum and Sol fell approximately 9% during that period. But some other crypto-related assets, including shares of Coinbase Global (COIN) and Strategy (MSTR), are holding up a little better, down about 1% and 2%, respectively.
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