Dynamically growing in recent months, the cryptocurrency market has signaled that it could not only serve as a machine for potential earning, but is also burdened with a huge risk of rapid and deep corrections. These are what we are seeing, and they involve various cryptocurrencies, with bitcoin at the forefront.
The capitalization of the entire cryptocurrency market, which was still over $2.25 trillion on Saturday, April 17, has now fallen to $1.77 trillion. Bitcoin's capitalization, in turn, has fallen lower from $1.2 trillion to $906 billion, and the BTC/USD exchange rate itself has taken a 25 percent dive since its weekend peak. Just in percentage terms, the current correction appears to be the biggest since the last week of February, when the market fell 24 percent, and since the beginning of 2021, when the stock plunged 28 percent.
Today (Friday) bitcoin fell more than 5 percent below $50,000. This could be the seventh day of declines in eight days. The catalyst for the sell-off was seen as news that U.S. President Joe Biden is considering raising tax rates on wealthy individuals and companies to help pay for social spending. The new proposal would nearly double capital gains taxes for those earning more than $1 million - from 20 percent to 39.6 percent. However, despite the recent volatility, bitcoin has gained more than 500 percent year-to-date, with price gains driving institutional buying and its appeal as a hedge against potential inflation. It's also worth noting that the U.S. tax news had very limited impact on the stock market, which only briefly reacted with a decline, while the cryptocurrency market plunged. So here more factors may be at play.
Relatively little compared to bitcoin seems to have been lost by ethereum, which just yesterday set an all-time high above $2500. Today, the price seems to have fallen by around 15 percent from that peak. Meanwhile, litecoin seems to be experiencing a larger correction than bitcoin, with the price falling by 30 percent in recent days towards $200 apiece.
In the traditional currency market, on the other hand, the US dollar seems to be near the seven-week lows reached at the beginning of the week and seems to be on track to record a third consecutive week of weakness. The reasons for this may be the Treasury bond yields remaining below the recent highs and the Fed not intending to reduce the scale of its asset purchases in the near future. Meanwhile, prospects for a strong economic rebound in the U.S. and rising vaccination rates appear to support risk-off sentiment, although rising coronavirus infections in India and elsewhere have dampened prospects for a rapid global recovery.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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