“The crypto markets are currently processing a cascade of news that fuel the bear case for price development,” said Ulrik Lykke, executive director at crypto hedge fund ARK36.
“News like this can get a lot of traction and easily stir market sentiment but they often prove of little significance in the long term. The crypto markets are extremely emotionally driven and their participants are prone to overreacting to events they perceive as negative.”
However, some cryptowatchers predicted more losses ahead, noting the fall below $40,000 represented a breach of a key technical barrier which could set the stage for more selling in the short-termat least.
More importantly, investors may be shifting from bitcoin back to gold, analysts at JPMorgan said, citing positioning data compiled on basis of open interest in CME bitcoin futures contracts.
This shows “the steepest and more sustained liquidation” in bitcoin futures since last October, they told clients, adding: “the bitcoin flow picture continues to deteriorate and is pointing to continued retrenchment by institutional investors.”
The selloff in crypto assets at a time when inflation fears are in the ascendancy hurts the idea of the asset class acting as an inflation hedge.
Instead, more traditional hedges have been gaining ground, with gold up almost 6% so far this month.
The recent selloff in bitcoin and other digital currencies has taken market capitalisation of all cryptocurrencies back under $2 trillion, down from the recent $2.5 trillion record.