Bitcoin has tumbled below $30,000 for the first time since July as interest rate rises send investors fleeing from the riskiest corners of global financial markets.
The world’s most actively traded digital token fell as low as $29,730 in Asia trading on Tuesday, according to Refinitiv data, before recovering to about $32,000 in European activity. It has fallen more than 50 per cent from the high it reached in November.
Other digital assets have also come under heavy pressure in recent weeks, pushing the market value of the top 500 digital assets down by half from the record reached in November 2021 to $1.6tn, CryptoCompare data collated by the Financial Times show.
The crypto slump comes as investors have dashed out of speculative financial assets after a wave of rate rises by global central banks sparked ructions across markets. Other risky assets such as shares in lossmaking companies and junk bonds have also come under pressure, but cryptocurrencies have sustained a particularly intense blow.
The crypto market flourished as central banks pushed interest rates to record lows at the height of the coronavirus crisis, sending traders hunting for assets that provide strong returns. However, a big sell-off in global government bond markets this year has pushed yields higher, amping up the potential returns investors can earn from holding high-grade debt.
“This is a risk off across all asset classes including crypto,” said Daniel Ives, strategist at Wedbush Securities, who added that there was “nowhere to hide.”
In a sign of how deep the losses are for the crypto market, an FT Wilshire gauge tracking the top five digital coins excluding bitcoin has fallen more than 70 per cent from its recent high. Once fast-growing tokens such as Solana, billed as an alternative to the Ethereum network, have rapidly deflated in value.
Listed shares in crypto-exposed companies have slumped as well. MicroStrategy, which is led by crypto advocate Michael Saylor, has dropped 60 per cent this year. Coinbase has dropped 67 per cent in 2022, falling below $100 on Monday for the first time since the exchange went public in New York in April 2021.
Bitcoin mining companies such as Bitfarms and Marathon Digital Holdings, which use powerful computers to solve puzzles for which they are compensated in digital tokens, have also fallen sharply.
The pullback also highlighted how the performance of bitcoin and other cryptocurrencies was tightly linked with the US stock market. The correlation between bitcoin and the Nasdaq Composite, a gauge that is weighted towards US Big Tech companies, has reached record highs, according to data provider Kaiko.
“Some investors are playing crypto like a hedge against inflation, but it’s trading like the Nasdaq’s Siamese twin,” said Ives.