‘A perfect storm’ as bitcoin crash over the weekend puts it on the verge of ‘broken’. This is what the crypto bulls are saying.

NYDIG, a technology and financial services company dedicated to bitcoin, said that the drop was even more severe for some foreign platforms like Huobi, where bitcoin briefly hit the nadir in 24 hours. at $28,800 on Saturday.

It was a painful fall that might even make some veteran crypto speculators nauseous to the touch.

The drop also meant that the total market value of the crypto universe, tracked by CoinMarketCap.com, dropped by nearly $400 billion to around $2 trillion, before recovering to around 2.2 trillion dollars.

So what drops precipitated? It’s not 100% clear.

Analysts at CoinDesk have blamed at least some of the trading downturn in crypto derivatives products, amplified by growing concerns about the prospect of tighter financial conditions are forced to revalue sensitive assets with potentially rising borrowing costs.

Fairlead Strategies’ Katie Stockton writes: “The drop may have been partly technical, exacerbated by the derivatives market, and not supported by the downside momentum behind Friday’s high-growth stocks, such as bitcoin. positively correlated,” wrote Katie Stockton of Fairlead Strategies, in a Saturday Morning Note.

NYDIG estimates that $1.1 billion in bitcoin and $2.5 billion in leveraged positions in cryptocurrencies (including bitcoin) have been liquidated in the past 24 hours, representing biggest nominal liquidation since September 7.

Bitcoin’s value has been falling for weeks but declines for other risk assets are accelerating with the Federal Reserve suggesting it could accelerate the withdrawal of market support provided over the past 18 months. during the coronavirus pandemic when it became focused on curbing inflation. This so-called “reducing” bond buying leads investors to believe that rate hikes will be on the central bank’s agenda in 2022.

Some believe that bitcoin and other digital assets do not correlate with the prices of other assets, which has been heralded as one of the more appealing features of bitcoin and its ilk. However, cryptocurrencies have recently traded more heavily with traditional stocks and bonds in part due to the prevailing low interest rate environment and if that changes then the value of a wide range of assets, including inflation. broadcast, must be reevaluated.

In other words, the value of an asset is its future income, discounted to the present using interest rates, plus a “risk premium”—the additional return you expect when own something riskier than government bonds. An increase in interest rates reduces the present value of that future income.

In traditional markets, that revaluation shows that tech stocks underperform because they are most sensitive to exchange rate changes. Tech-filled Nasdaq Composite Index
COMP,
-1.92%

stood 6% from November 19 highs, with a drop in vapor collection over the past week, amid concerns about the economic impact of the coronavirus omicron variant and concerns about monetary policy plans. Fed currency.

Meanwhile, the Dow Jones Industrial Average
DJIA,
-0.17%,
is halfway to a correction and is down more than 5% from the record close on Nov. 8 and the S&P 500
SPX,
-0.84%

was 3.5% from its all-time high closing on November 18, while the small-cap Russell 2000 index was in a correction, usually defined as a drop of at least 10% from the recent peak, on Thursday.

On Twitter, Michael Novogratz, founder and CEO of cryptocurrency company Galaxy Digital, tweeted that context in the market was a “perfect storm”, perhaps referring to the collapse in the broader markets, the omicron fear and Hawkish commentary from the Federal Reserve.

Fairlead’s Stockton says that if the downturn persists, after bitcoin breaks through support at around $53,000, it would qualify as a more troubling technical analysis of the asset’s bullish bias.

“Momentum has weakened to the point that there is a pending weekly MACD ‘sell’ signal that will be reinforced when a breakdown is confirmed tomorrow,” she wrote, referring to the Convergence/Moving Average/ Divergence, used by technical analysts as a measure of momentum in an asset.

However, NYDIG suggests that they are seeing a positive trend for bitcoin and crypto: “On our desks, we saw two-way flow today with 84% of the flow being bought. on our trading desk, excluding tax-loss transactions,” the company wrote in a note on Saturday.

In another cryptocurrency, Ether
ETHUSD,
+ 1.70%

on the Ethereum blockchain was trading slightly up but holding above $4,100, at $4,143, by the last test on Sunday afternoon. It was as low as around $3,500 on Saturday.

Undoubtedly, cryptocurrency is one of the more volatile assets and is still in the process of gaining credibility as a reliable alternative.

Several crypto speculators, known for holding on to long-term investments despite strong swings, shed light on Saturday’s drop, such as this tweet from the Twitter account. associated with Billy Markus, one of the founders of dogecoin
DOGEUSD,
-3.62%,
has become such a popular meme asset that it has been cloned by other tokens like Shiba Inu
SHIBUSD,
-3.58.