Panic wind in the cryptocurrency and NFT market! In the wake of technology stocks falling on Wall Street since the start of the year, cryptocurrencies have had a dramatic crash in recent days. After hovering around $ 40,000 for several months, bitcoin briefly fell below $ 30,000 on May 10, the first since July 2021. The peak of $ 69,000 last November now looks good. long !
In its downfall, bitcoin pulls down other cryptocurrencies, with ether falling 17% in seven days. The total market is thus estimated at just over 1,500 billion dollars against 3,000 billion at its highest, according to data from the Coingecko site, which collects more than 13,000 cryptocurrencies. Among the 20 largest cryptocurrencies, almost all have been on a downward trend for three months, such as bitcoin and ether, which have fallen by almost 25% during the period.
It’s no better on the NFT side, which is also in disarray. Proof of this is with the most popular collection in the sector, the Bored Ape Yacht Club, which includes 10,000 unique designs. It lost 35% in one week, according to the OpenSea platform. In just seven days, the average price of a Bored Monkey went from just over $ 430,000 to almost $ 260,000. The situation is not much better for CryptoPunks, these little pixelated characters from retro games who popularized avatars in NFTs. The latter has dropped by almost 25% in one week, and even by more than 65% within the last 24 hours.
Cryptocurrencies now follow the stock market
While it is hardly surprising to see NFTs follow cryptocurrencies in their fall, insofar as these digital assets are supported by the latter, it is a somewhat more unusual event to see bitcoin and other virtual currencies sink in the wake of Nasdaq technology stocks, though the sector is accustomed to cycles of volatility.
Until 2020, the price of cryptocurrencies was thus decor-related from the upheavals on Wall Street. But the adoption of bitcoin and cryptocurrencies more widely by financial institutions around the world has changed that. And this digital asset, which is on the edge of the global financial system, has thus begun to follow the dynamics of stock market assets on the New York Stock Exchange. As the technology stocks it hosts have fallen steadily since the beginning of the year, cryptocurrencies are following suit.
At the start of the war in Ukraine, the illusion lasted that bitcoin became a safe haven for a few days before it finally followed the development of the stock markets. In addition, the armed conflict in Eastern Europe comes on top of other events with international resonance, such as the recovery of the Covid-19 pandemic in China, the increasingly harsh monetary policy in the United States or runaway global inflation. So many elements that contribute to an anxious climate in the traditional markets, which are becoming more and more concerned. And this concern is spreading to other assets, such as cryptocurrencies, which are failing to counteract the current crisis.
El Salvador on the verge of bankruptcy?
In addition to reducing capital gains to zero or almost for certain investors in cryptocurrencies, this situation may prove even more dramatic for countries with strong ambitions in virtual currencies. That is the case with El Salvador, which adopted bitcoin as a legal tender in September 2021 despite pressure from the International Monetary Fund (IMF), which recommended the country abandon such a project.
Fears increase as a bond expires in January 2023, but with the country’s currency reserves collapsing, holding more than 2,000 bitcoins, bondholders are losing confidence and are now seeing the ghost of default rise. And with good reason: this Central American country has still not attracted any investors for its government bond backed by bitcoin.
This should make it possible to raise a billion dollars, especially to finance the government bond that is about to expire and to build “Bitcoin City”, a city powered by the energy of a volcano for mining cryptocurrencies. However, the president of El Salvador, Nayib Bukele, is keeping the course and has even just announced that his country had bought 500 bitcoins at an average price of $ 30,744 and took advantage of the fall in the cryptocurrency. This still represents an amount of $ 15.3 million.
Greater risk aversion
This critical situation may last for several more months, while technology stocks that had risen sharply in the stock market during the health crisis are currently victims of a violent market correction. The peloton is the symbol of this meltdown in the stock market with $ 4.3 billion in capitalization on Wall Street today compared to almost $ 56 billion at its peak in January 2021.
The crypto-sphere should therefore continue to suffer for some time before resuming its course towards new heights. However, the current context has not dampened Instagram, which has just been launched in NFTs. But in the current period, with strong geopolitical and economic instability, investors’ risk aversion is particularly strong. As a result, almost nobody buys cryptocurrencies on the downside … except El Salvador.