Posted on Jan 6, 2022, 11:40 a.m.Updated Jan 6, 2022, 12:48 PM
When two speculative bubbles (GAFA and cryptos) collide, the plunge risks being in line with the irrational exuberance of the past. The correction of large American tech stocks brought in its wake the most technological of currencies, cryptocurrencies, which were very dearly valued after a flagship year. Far from being defensive protective assets, bitcoin and cryptos are particularly risky growth stocks.
Bitcoin ($ 43,240 or 38,265 euros) and cryptos experienced a chaotic start to the year comparable to January 2021, when the market leader had experienced a “flash crash” of 20% and a sharp increase in volatility. Over the last 24 hours, cryptos have lost between 7% and 12%. Bitcoin is holding up better than the others, at -7%.
Correlation with the Nasdaq
“There was a time when cryptos lived in their world, isolated from other asset classes. This is no longer the case and they did not appreciate the hardening of the tone of the Federal Reserve ”, comments on Twitter, Jens Nordvig, the founder of Exante Data. Over the past 20 sessions, bitcoin has seen its correlation increase with the US tech market.
The 3.3% drop in American tech stocks on Wednesday had an impact on cryptos, the 2.0 currencies of the new digital age. Bitcoin follows the most speculative component of the US stock market with an amplifying effect. The Apple group alone ($ 3 trillion) weighs half as much as the entire crypto market ($ 2,000 billion). The plunge of GAFA has a ripple impact on cryptos. Since 2011, bitcoin has gained an average of 230% each year, 10 times more than the market for American technology stocks, the Nasdaq (+ 20% per year).
Over the last 7 days, the selling pressure on bitcoin has mainly come from American investors, while Europeans and Asians were rather buyers. With the development of financial products indexed to cryptos, listed in the United States, and the arrival of new American institutions (hedge funds, etc.), Wall Street is taking the lead in the development of global crypto prices.
COVID Era Fixes
Since the COVID crisis, bitcoin has experienced five phases of correction that lasted between 21 and 73 days for declines of between – 75% (March 2020) and – 27% (January 2021), according to data from Cryptoquants. The new correction, which began in early November, has already been going on for almost two months. Bitcoin lost 20% in December, its worst end of the year since 2015.