What took place?
As the world grapples with news of a new COVID-19 version, cryptocurrencies plummeted throughout the market early Friday morning. In premarket trading, stock markets dropped, but cryptocurrencies, which trade a whole day, began to fall just after midnight ET.
Bitcoin (CRYPTO: BTC) has been on a downward trend for about a month, but it intensified early Saturday. As of 9 a.m. ET, the largest cryptocurrency has lost 7% in the last 24 hours and has lost nearly 23% since peaking at nearly $69,000 in early November.
Smaller cryptocurrencies have suffered even more losses in the last 24 hours, with Ethereum (CRYPTO: ETH) down 13%, Dogecoin (CRYPTO: DOGE) down 35%, and Solana (CRYPTO: SOL) down 17.36%.
So, what’s the deal?
A special conference of the World Health Organization is being held today to discuss a new type of COVID-19 that is spreading in South Africa and maybe other nations. Although the evidence is still limited, this variant has been linked to increased transmissibility and immune evasion than previous strains.
Today’s losses were not limited to cryptocurrencies. Premarket stock markets are down between 1% and 2%, and oil is down 6.5 percent. This is a broad sell-off, and cryptocurrencies are only one of the assets being sold.
So, what’s next?
Today’s move appears to be a so-called risk-off transaction. Risky assets are sold in favor of cash or safer assets such as Treasuries by investors. As a result, it’s no surprise that 10-year Treasury rates have dropped 10 basis points to 1.53% as investors bid up government paper.
It’s worth remembering that Friday is a short trading day during the holiday week, which usually results in increased volatility as Wall Street traders take a break. This could result in some larger-than-usual fluctuations, perhaps amplifying today’s trade.
What is apparent now, in my opinion, is that cryptocurrencies are currently in a downward spiral. Values are down 20% or more in many cases, and if investors stop buying risk assets out of concern of an economic slowdown as a result of COVID-19, trillions of dollars in stimulus may not be forthcoming, as it was in the previous 18 months. So far, crypto has not served as a hedge against market declines but rather has amplified market reactions, as is the case today.
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