(Kitco News) The crypto space was a sea of red Monday as the prices plunged, with Bitcoin and Ethereum down nearly 10% on the day.
Investors abandoned risk-on assets in droves as stocks saw another steep drop that sent the S&P 500 below the 4,000 level for the first time in more than one year. The Dow was also down 1.9%, and the Nasdaq dropped 4.2% on the day.
Leading the selloff was the bond market, with the U.S. 10-year Treasury yields surging above 3% and reaching the highest level since late 2018.
Sentiment in the marketplace has been shifting quickly as recession fears grow due to the Federal Reserve’s expected 50-basis-point rate hikes in June and July.
“The overwhelming focus continues to be on inflation, rising interest rates, and the war in Ukraine,” said Brian Price, head of Investment Management at Commonwealth Financial Network. “The combining factors of tight supply chains resulting from China’s zero Covid policy, and rising oil and food prices due to the war in Ukraine, are causing inflationary fears that are triggering a move out of risk assets.”
A potential bottom for the S&P 500 could be between 3,850 to 4,000, according to John Lynch, chief investment officer at Comerica Wealth Management. “Without recession in 2022, which is our base case, stocks can resume higher as equity investors discount cyclical recovery in an environment where monetary policy is no longer shepherding expensive growth and technology names at a multiple of sales,” Lynch noted Monday.
The risk-off sentiment has dragged most of the crypto space down, with massive price drops in Bitcoin, Ethereum, Binance Coin (BNB), Ripple (XRP), Solana, and Cardano.
Bitcoin continued to fall closer to its critical support at around $30,000, last trading at the lowest level since July 2021 — $31,392, down 9.2% on the day.
If Bitcoin can’t hold the $30,000, a steep drop could be triggered, according to analysts.
“There’s support at $30,000, but we think it breaks. Risk to $12,000 thereafter,” said 22V Research senior managing director John Roque. “Purely from a sentiment perspective, we think there’s a lot of similarity between the holders of Bitcoin and ARKK as both are fully committed to their causes. On the way up, such enthusiastic sentiment worked as an asset, now it’s a huge liability.”
Ethereum, the world’s second-largest cryptocurrency by market cap, was at $2,306, down 9.8% on the day. BNB was at $311.84, down 13% on the day; XRP was at $0.51, down 12%; Solana last traded at $67.09, down 12% on the day; and Cardano was at $0.65, down 14.6% on the day.
A turnaround in risk sentiment could come to fruition if the highly-anticipated U.S. inflation numbers from April surprise with a slower pace this Wednesday.
“One may argue that sentiment has gotten too bearish as outflows from equity funds have really picked up as of late. Any positive developments on the geopolitical front, or a weaker than expected CPI report later this week, could help turn the tide and see investors embrace risk assets once again,” Price added.
The crypto space has been mirroring the performance of U.S. equities due to its increased levels of institutional involvement, which means that Bitcoin is treated more like a tech stock and traded frequently based on risk sentiment.
“As institutional holding of #Bitcoin #XBT have increased then like other assets such as stocks, it’s become more and more sensitive to broad financial conditions. Hence, in the last Fed tightening cycle, it declined 82%. Is history repeating?” tweeted Macro Intelligence 2 Partners co-founder Julian Brigden.
As institutional holding of #Bitcoin #XBT have increased then like other assets such as stocks, it’s become more and more sensitive to broad financial conditions. Hence, in the last Fed tightening cycle it declined 82%. Is history repeating? pic.twitter.com/MEChKKzu2a
— Julian Brigden (@JulianMI2) May 9, 2022
In the meantime, Bitcoin bulls, including the first country in the world to adopt Bitcoin as legal tender, continued to buy the dip.
El Salvador’s President Nayib Bukele tweeted that they bought 500 coins on Monday at an average USD price of $30,744.
El Salvador just bought the dip! ????
500 coins at an average USD price of ~$30,744 ??#Bitcoin
— Nayib Bukele (@nayibbukele) May 9, 2022
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