Macroeconomic factors drive crypto to biggest sell-offs

• Market may see a decoupling of crypto from traditional stocks, similar to what we saw in 2020.
• For crypto investors, the sell-off represents an opportunity to review their portfolios and solidify their convictions.

The dramatic sell-off in the cryptocurrency market on Monday, pushed Bitcoin down over 14 per cent and Ether experiencing its steepest decline since 2021, has sent shockwaves through the industry.

Top token Bitcoin’s retreated to below $50,000 in early trade added to a 13.1 per cent drop last week that was the worst since the period when the FTX exchange imploded.

Bitcoin trades at $52,208 at 1.50pm, down 10.20 per cent.

Ether shed over a fifth of its value before paring some of the slide to change hands at $2,286. Most major coins were deeply in the red.

The volatile period, however, presents an opportunity for a deeper understanding of the forces at play and the potential for future growth.

The current downturn cannot be isolated as a purely crypto-specific event. Rather, it is a symptom of broader macroeconomic anxieties.

The Bank of Japan’s unexpected interest rate hike, coupled with concerns surrounding the US Federal Reserve’s decision to maintain rates, has triggered a wave of risk aversion across global markets.

This has impacted traditional assets like stocks, leading to significant declines in the S&P 500, NASDAQ, and Japan’s Nikkei 225 index.

Wave of risk aversion

While the magnitude of the crypto sell-off appears substantial, it’s crucial to consider the context.

Tim Kravchunovsky, founder and CEO of the decentralised telecommunications network Chirp, argues that in dollar terms, the crypto market has shown relative resilience compared to traditional markets.

He points to the fact that the recent declines in traditional assets, particularly in Japan, dwarf the crypto market’s losses.

Japan’s Nikkei 225 index closed 12.4 per cent lower in what marks the second worst single-day rout since Black Monday in 1987, while the S&P 500 opened 4.1 per cent lower and the tech-heavy NASDAQ is down more than 5 per cent.

“The perspective suggests that the current downturn may be less about intrinsic weakness within the crypto space and more about a broader investor sentiment shift towards risk aversion.”

Independent growth

However, he added that the market may see a decoupling of crypto from traditional assets, a phenomenon observed in 2020 during the pandemic-driven market crash.

Crypto then experienced a faster and more pronounced recovery compared to traditional markets, highlighting its potential for “independent growth”.

“While the current situation may follow a similar trajectory, the recovery timeline remains uncertain,” Kravchunovsky sdaid.

However, he said that the sell-off serves as a valuable opportunity for crypto investors to revisit their portfolios and reinforce their convictions.

As the market recovers, he said the projects with demonstrable real-world utility are likely to emerge as frontrunners.

These projects, like those focused on data storage, infrastructure, cybersecurity, and decentralised physical infrastructure networks (DePINs), bridge the gap between Web3 and the real world, ensuring their longevity and delivering consistent returns, he added.