After a huge stock sell-off in the United States, Bitcoin fell below a critical support level last week, the cryptocurrency market was shaken on Tuesday, sending Bitcoin down 10%.
The worst trading day was May 12, when Bitcoin fell from just over $30,000 to $25,300, its lowest price since late December 2020. Despite rebounding quickly and regaining thousands of dollars in a matter of days, the cryptocurrency ended the weekly candle lower than the previous one.
The swings come after a difficult day on Wall Street on Thursday, when the blue-chip Dow Jones Industrial Average dropped more than 1,000 points and the tech-heavy Nasdaq dropped 5%. Both losses were the worst single-day dips since 2020, and they came after huge rallies the day before. On Friday, the Dow and Nasdaq plummeted once again.
Bitcoin, whose price is still heavily associated with stock market movements, has been stuck in a tight range all year as it tries to recapture its late-2020 highs amid the broader market sell-off.
"You've already seen the beta collapse, i.e. [if] the Nasdaq falls 3%, crypto doesn't fall 9% as it would have last year," Michael Novogratz, CEO of Galaxy Digital, told CNBC's "Squawk Box Friday." "However, I believe there will be more suffering to come."
Interest rate hikes and monetary policy tightening have fueled fears that the US economy may enter a recession. On Wednesday, the United States As expected, the Federal Reserve hiked its benchmark interest rate by half a percentage point.
The stock market quickly rose after Fed Chair Jerome Powell stated that a larger rate hike of 75 basis points is not currently being considered. Nonetheless, markets mentally braced for more tightening this year by Thursday, wiping out all of the Fed rally's gains.
"What makes this different from 2008, 2001, and the COVID crises is that the cavalry isn't here." "There will be no massive injection of liquidity to produce the V-shape; we'll fall down and then grind until a fresh story emerges, and then we'll go off again," Novogratz said.
"Plunging in and buying the low will not be nearly as enjoyable," he continued. "You'd look like a hero eight weeks later if you did that after Covid." There aren't many hero swaps available."
Despite the market's anxiety and uncertainty, institutional and long-term investors are still interested in crypto.
"It's incredible how much institutional cash is beginning to flow into the place," Novogratz added. "BlackRock, Blackstone, Citadel, and Apollo are all putting significant resources into crypto, so it's obvious to me that there's a backstop somewhere in crypto."
According to Will Clemente, lead insights analyst at Blockware Solutions, the amount of bitcoin supply that hasn't moved in at least a year has reached an all-time high. Long-term holder supply has also increased, despite their cost basis dropping, according to him. This indicates a supply shift from top buyers to long-term investors.
"With macro in control, basic bitcoin analysis like on-chain analysis has less weight in our market forecast right now," he said. "With that in mind, fundamental investors have been sitting tight beneath the surface."
According to Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, Bitcoin lost a crucial threshold when it dipped below $37,500, indicating a trend lower in the coming days. The next stop down, he added, is $30,000, but if bitcoin doesn't hold that level, it may fall to $25,000, he claimed.
According to data from the digital asset price-tracking website CoinMarketCap, the cryptocurrency market lost $160 billion over that time period, dropping 8.8% to $1.65 trillion from $1.81 trillion in less than two days.
The drop in cryptos followed a significant selloff in tech equities on US markets late Thursday, with Netflix and Amazon shares plummeting 7.6% and Facebook's parent company Meta falling 6.7 percent, respectively.
Tech selloff
Investors are concerned about the US economy's gloomy future, which includes worries of recession, as well as the corporations' lackluster first-quarter earnings reporting.
Despite rallying on Wednesday when the Federal Reserve ruled out 75 basis point rate hikes in future meetings, stock market indices gave up all of their gains, and even more, on Thursday.
On Thursday, the Dow Jones fell 1,063 points, or 3.1 percent, marking its worst single-day performance since 2020. The S&P 500 had its second-worst day of the year, losing about 3.6 percent.
The Nasdaq Composite dropped over 5% to close at 12,317.69, its lowest level since November 2020.