- The benchmark cryptocurrency whipsawed investors on Thursday, tracking the swings in the tech-focused Nasdaq 100, often viewed as a proxy for risk sentiment.
- Investors can expect volatility to increase in the coming weeks as a slew of uncertainty could see investors dive back into haven assets like Treasuries and interpreting stable yields as a sign that risk is back on the table could be misleading.
Before you can say “hold my ledger” bitcoin’s sharp rebound and then subsequent fall in the past 24 hours all but mirrored the whiplash that occurred for tech stocks, proving once again that when it comes to crypto and tech, they’re more attached at the hip than some would hope.
The benchmark cryptocurrency whipsawed investors on Thursday, tracking the swings in the tech-focused Nasdaq 100, often viewed as a proxy for risk sentiment.
Stabilizing U.S. Treasury yields provided brief respite for risk takers and the Nasdaq 100 rallied as much as 2% at one point before erasing those gains and losing 1.3%.
But this time it wasn’t even tech’s most speculative corners that contributed to the significant volatility, stalwarts of the pandemic like Amazon.com and Netflix were hammered, especially after the latter reported poorer than expected subscriber growth in the fourth quarter of 2021.
Lacking any other macro influences outside of risk sentiment, the 100-day correlation coefficient between bitcoin and the Nasdaq 100 soared to 0.40, the highest reading going back to 2011 (a correlation of 1 means that two assets move in lockstep, while -1 would show they move in perfectly proportionate but opposite directions).
Bitcoin rose momentarily above US$43,000, a key level of resistance in 2022, but the sudden turn in sentiment saw the benchmark cryptocurrency come within a hair’s breadth of penetrating the psychologically-significant US$40,000 level of support.
Ether, the smart contract cryptocurrency of choice wasn’t so restrained in its pullback and at the time of writing is trading around US$2,900, having slipped below the US$3,000 level of support.
Investors can expect volatility to increase in the coming weeks as a slew of uncertainty could see investors dive back into haven assets like Treasuries and interpreting stable yields as a sign that risk is back on the table could be misleading.
Russia, which had for the longest time been relatively open towards cryptocurrencies, has joined China in proposing a ban on bitcoin mining and trading activity, even as its troops mass menacingly on its border with Ukraine.
Nevertheless, there are some analysts who believe that Moscow’s sudden ill-will towards bitcoin will have limited effect on the cryptocurrency’s possible role as a portfolio hedge.
China’s total ban on all things cryptocurrency has seen miners flee to other countries, hashrates return to normal and trading activity in offshore exchanges unaffected appears to provide more than enough evidence of the resilience of bitcoin and cryptocurrencies to censorship and government intervention – that in and of itself may make a decent case for addition to a portfolio.
