Bitcoin bulls beware: Wall Street expects the cryptocurrency’s crash to get a whole lot worse.
The token is more likely to tumble to $10,000, cutting its value roughly in half, than it is to rally back to $30,000, according to 60% of the 950 investors who responded to the latest MLIV Pulse survey. Forty percent saw it going the other way. Bitcoin fell 2.4% to $20,474 on Monday morning in New York.
The lopsided prediction underscores how bearish investors have become. The crypto industry has been rocked by troubled lenders, collapsed currencies, and an end to the easy money policies of the pandemic that fueled a speculative frenzy in financial markets.
Some $2 trillion has vanished from the market value of cryptocurrencies since late last year, according to data compiled by CoinGecko.
Retail investors were more apprehensive about cryptocurrencies than their institutional counterparts, with almost a quarter declaring the asset class to be garbage. Professional investors were more open-minded toward digital assets.
But overall, this sector remains a polarizing one: while some 28% of the overall respondents expressed strong confidence that cryptocurrencies are the future of finance, 20% said they’re worthless.
Bitcoin has already lost more than two-thirds of its value since hitting nearly $69,000 in November and hasn’t traded as low as $10,000 since September 2020.
“It’s very easy to be fearful right now, not only in crypto, but generally in the world,” said Jared Madfes, partner at Tribe Capital, a venture capital firm. He said the expectations for a further drop in Bitcoin reflect “people’s inherent fear in the market.”
The crypto crash is likely to put further pressures on governments to step up regulations of the industry. Such supervision is seen as positive by majority of respondents, since it could improve confidence and lead to broader acceptance among institutional and retail investors.
Government intervention will also probably be welcomed by consumers burned by the collapse of so-called stablecoin TerraUSD and troubled middlemen like Celsius Network and broker Voyager Digital Ltd.
Central banks are also considering developing their own digital currencies for use in digital payments.
But neither the recent price drops — nor the potential challenge from central banks — are expected to significantly upend the industry by dethroning the two dominant tokens, Bitcoin and Ether. A majority of respondents anticipate that one of those two will remain a driving force in five years even while a significant share sees central bank digital currencies taking on a key role.
“Bitcoin still is powering large parts of the cryptoverse, while Ethereum is losing its lead,” said Ed Moya, senior market analyst at Oanda Corp., a foreign-exchange broker.
There was a broader consensus about one corner of the market: Nonfungible tokens. NFTs became famous for attracting valuations in the millions of dollars for pictures of monkeys during the height of the crypto boom. But the overwhelming majority of those surveyed consider them to be just art projects or status symbols, with only 9% seeing them as an investment opportunity.
Moreover, those hunting for the next asset-price bubble may do well to look elsewhere, since speculative manias rarely strike the same asset class twice. Ultimately, the next big run-up is expected by most respondents to be entirely unrelated to cryptocurrencies, with NFTs, the next generation of the internet known as web3 and other blockchain developments seen as having low chances of setting off the next frenzy.
“The next financial bubble is always something different than the last bubble, so the majority is absolutely right on this one,” said Matt Maley, chief market strategist at Miller Tabak + Co.
For more markets analysis, see the MLIV blog. For previous surveys, see NI MLIVPULSE.
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Australian shares have finally rebounded, after plummeting for seven straight days into correction territory on high inflation and recession worries.
The ASX 200 is in correction territory, having dropped by almost 16pc from its record high
Bitcoin plunged as low as $US17,593 over the weekend
Lower iron ore prices and the risk of a global slowdown have weakened the Australian dollar
The ASX 200 was up 1.1 per cent, to 6,505 points, by 12:25pm AEST on Tuesday.
The financial sector was boosting the market, with shares of Commonwealth Bank, Westpac, ANZ and NAB rising between 1.2 and 2.8 per cent.
It comes as Reserve Bank governor Philip Lowe said he expects to discuss hiking interest rates by either 0.25 or 0.5 percentage points at the RBA’s July policy meeting.
Dr Lowe also downplayed the possibility of a larger hike, and said he does not see Australia falling into recession.
Mining giants BHP, Rio Tinto and Fortescue Metals also lifted sharply, by around 2 to 2.6 per cent.
Energy stocks were some of the best performers, like Whitehaven Coal (+6.9pc), Beach Energy (+4.2pc) and Paladin Energy (+7.4pc).
Shares of Novonix (+6pc), Pointsbet (+5.5pc), Chalice Mining (+4.3pc) and Imugene (+3.3pc) also rose sharply.
The Australian dollar recovered slightly, to 69.7 US cents, but remains near its weakest level since July 2020.
It is partly being weighed down by falling iron ore prices, on worries about the impact of China’s COVID-zero policy.
China is the biggest buyer of Australian iron ore, and the price of the steel-making ingredient has plunged 8 per cent to around $US112 a tonne, according to ANZ data.
“Further falls in iron ore prices can add to downside pressure on the Australian dollar today,” said Commonwealth Bank currency strategist Carol Kong.
Ms Kong also said the local currency can slip further because of the “coming sharp slowdown in the world economy”, and has forecast it will trade within a range of 60-70 US cents for most of the next 12 months.
Meanwhile, the cryptocurrency industry was on edge as bitcoin held just above $US20,000 and investors feared that problems at major crypto players could unleash a wider market shake-out.
Oil prices swung higher in volatile trading, with Brent crude futures rising 0.9 per cent, to $US114.13 a barrel.
Spot gold was little changed in holiday-thinned trading, at $US1,837.46 per ounce.
‘Reputational damage’ for the RBA
In a rare admission, the Reserve Bank said that it has suffered “reputational damage” due to how it handled the ending of its pandemic-era stimulus program (designed to keep short-term bond yields low).
The RBA said its “yield curve control” stimulus was successful for much of its 21-month life. However, the bank has conceded that its withdrawal from the program in late 2021 was “disorderly”.
The programme began in March 2020 as part of a massive COVID-19 stimulus package. It was initially aimed at keeping yields on three-year Australian government bonds around 0.25 per cent, though it was lowered to 0.1 per cent later that year.
For most of its life, the plan worked to keep yields and market interest rates lower than they would otherwise have been and to put downward pressure on the local dollar.
But in late 2021, yields began to rise as the market began to price in the risk of an earlier-than-expected increase in the cash rate.
The RBA initially bought bonds to defend the target but in late October stepped away from the market, sending yields surging and triggering heavy losses in bond futures.
The central bank acknowledged its yield target should have ended earlier. The RBA also said it was unlikely to adopt this strategy again, preferring to just purchase bonds in set amounts across maturities.
More volatility ahead
Wall Street was closed for the Juneteenth public holiday, while European markets recovered some of their losses from the recent sell-off.
The pan-European STOXX 600 jumped 1 per cent overnight, with battered banking, travel and energy stocks leading the gains.
That index has shed almost 17 per cent this year so far, as a cocktail of worries from soaring inflation to China’s slowing economy and a cost-of-living crisis in the UK dampen investors’ appetite for risk.
Overnight, European Central Bank President Christine Lagarde reaffirmed plans to raise interest rates, twice, in the next few months, while fighting widening spreads in the borrowing costs of different euro zone countries.
“We’ll continue to see some volatility because inflation, in our view, is not going to start to come down until the end of this year,” said Willem Sels, global chief investment officer at HSBC.
Crypto industry ‘braced for more to come’
Bitcoin — the world’s biggest cryptocurrency — dropped on Saturday to as low as $US17,593, falling below the key $US20,000 level for the first time since December 2020.
So far this year, the volatile cryptocurrency has lost 55 per cent of its value — and 35 per cent this month alone in the cryptocurrency sector’s latest meltdown.
Bitcoin’s fall follows problems at several major crypto firms. Further declines, market players said, could have a knock-on effect as other crypto investors are forced to sell their holdings to meet margin calls and cover their losses.
Crypto hedge fund Three Arrows Capital is exploring options, including the sale of assets and a bailout by another firm, its founders told the Wall Street Journal in a story published on Friday.
It was also the same day that Asia-focused crypto lender Babel Finance said it would suspend withdrawals.
“We’ve likely seen the worst of things, in terms of any singular entity suffering, but most in the industry are braced for more to come,” said head of financial strategy at fund management firm Solrise Finance Joseph Edwards.
‘Domino effect of bankruptcies’
US-based lender Celsius Network this month said it would suspend customer withdrawals.
In a blog on Monday, Celsius said it would continue working with regulators and officials, but that it would pause its customer Q&A sessions.
“There is a lot of credit being withdrawn from the system and, if lenders have to absorb losses from Celsius and Three Arrows, they will reduce the size of their future loan books, which means that the entire amount of credit available in the crypto ecosystem is much reduced,” said chief risk office for Japan at crypto liquidity provider B2C2 Adam Farthing.
Smaller tokens, which usually move in tandem with bitcoin, were also hurt.
The second-largest cryptocurrency, ether, was at $US1,129, having dipped below its own symbolic level of $US1,000 over the weekend.
Recent falls in crypto markets have coincided with a sell-off on stock markets, as Wall Street last week suffered its biggest weekly percentage decline in two years on fears of rising interest rates and the growing likelihood of a recession in the US.
Bitcoin’s moves have tended to follow a similar pattern to other risk assets, such as tech stocks.
The overall crypto market capitalisation is roughly $US900 billion, according to price site Coinmarketcap, down from a peak of $2.9 trillion in November 2021.
A fall in stablecoins — a type of crypto designed to hold a steady value — is also suggesting investors are pulling money from the sector as a whole.
NEW YORK: Investors are bracing for more gyrations in bitcoin and other cryptocurrencies, as worries over a hawkish Federal Reserve threaten to squelch risk appetite across markets.
The volatility traditionally associated with cryptocurrencies has been on full display in recent weeks. Bitcoin, the largest cryptocurrency, is up by around 33% since Jan. 24 and recently traded at $43,850, rebounding from a tumble that cut its price in half from November’s record high. Its main rival, ether, is up around 45% since Jan. 24 at around $3,200, following a nearly 56% nosedive from its record high of $4,868, also in November.
While proponents of cryptocurrencies once touted their lack of correlation to other assets, bitcoin and its peers saw huge gains over the last two years, rallying along with stocks as the Fed and other central banks pumped unprecedented levels of stimulus into the global economy. Bitcoin is up 1,039% since March 2020 and ether has risen 2,940%, though the rallies in both cryptocurrencies have been interrupted by numerous-stomach churning selloffs.
Their recent volatility has come amid a broader market selloff driven by investors recalibrating their portfolios to account for a more aggressive Fed, which is now expected to raise rates as many as seven times this year as it fights surging inflation. The benchmark S&P 500 index is down 5.5% year-to-date, while the tech-heavy Nasdaq has lost 9.3%.
Worries that an aggressive central bank tightening cycle going forward will hamstring risky assets has made it difficult for some traders to maintain their bullish outlook on bitcoin and other cryptos, an asset class already identified with intense volatility.
Escalating tensions in Ukraine, where Washington warned a Russian invasion could begin any day, could also spark broad market moves, investors said.
Bitcoin has “really become the ultimate momentum trade and there are so many risks that can trigger a 40% drop out of nowhere,” said Ed Moya, senior analyst at Oanda.
Bitcoin’s volatility hasn’t stopped some analysts from trying to gauge the currency’s fair value or point out potentially important price levels.
Analysts at JPMorgan estimate bitcoin’s current fair value at around $38,000 – some 15% below its recent price – based on its volatility in comparison with that of gold, another asset investors often use to hedge their portfolios against inflation and economic uncertainty.
Vanda Research, meanwhile, said in a recent note that most of the bearish bets on a weaker bitcoin price were entered at around $47,000, and “there could be a large short-squeeze if the aforementioned threshold is crossed, and retail investors return to crypto-trading.”
Meanwhile, correlations between bitcoin and the S&P 500 reached an all-time high on Jan 31, according to data from BofA Global Research, undercutting the case for those hoping to use the cryptocurrency as a hedge against market turbulence.
Investors next week are expecting minutes from the Fed’s most recent monetary policy meeting, due out Wednesday. Walmart and chipmaker Nvidia Corp will be among the companies reporting results, as corporate earnings season rolls on.
Some investors are steeling themselves to ride out the volatility in bitcoin, betting that the long-term value proposition of blockchain technology, the built in supply limit, and the network effect it produces, will endure despite frequent price swings.
Jurrien Timmer, director of global macro at Fidelity, likened the current speculation in cryptocurrencies to the turbulence tech stocks experienced during the dot-com era more than two decades ago, a boom-and-bust period that saw a comparatively small group of companies left standing.
“Amazon is still around and Apple is still around and they’re bigger than ever and the thinking is that for bitcoin that will be the same,” he said. “But it’s not immune to those waves of speculation and sentiment.”
Bitcoin could reach $100,000 as soon as 2023, Timmer has said, based on his supply/demand models.
Others believe mature cryptocurrencies like bitcoin and ether are unlikely to deliver the kind of eye-watering gains they have notched since their founding.
Instead, they are looking to the universe of new, alternative coins that are being created to take advantage of the money pouring into the crypto space, including the metaverse and NFTs, which saw $30 billion worth of venture capital investment last year, according to PitchBook.
Some altcoins include cosmos, Terra Luna, and Polkadot, which are down around 20.5%, 38% and 25.5% year-to-date, respectively, according to coinmarketcap.com. Understanding the risks linked to them and decentralized finance is going to be one of the main challenges for investors in 2022, said Lily Francus, director of quantitative research strategy at Moody’s Analytics.
Cryptocurrencies “are going to remain very volatile going forward, but there are significant players on both the institutional side and the retail side that are still growing, so the interest is still growing,” said Oanda’s Moya.