They say something is only worth what someone else is willing to pay. For holders of bitcoin and other cryptocurrencies and digital assets, that increasingly appears to be the reality.
Bitcoin has lost more than 40% of its value since touching a high of $67,553.95 on November 8. On Monday, it briefly dipped below $40,000 to its lowest level since September.
It recovered in early trading on Tuesday, hovering around $41,868 at least check. For the week, bitcoin is down more than 9% while ethereum, the world's second-biggest digital token, has fallen more than 18%.
Declines across the cryptocurrency market have followed a rough start to the year for stocks as investors reassess where the economy is at and what the Federal Reserve is going to do about it.
Expectations are that the Fed is going to lift interest rates to slow the economy and put a lid on rising consumer and producer prices.
That is spurring a re-think among investors about tech stock valuations as well as what kinds of companies will do will in a rising-rate environment.
What that has to do with bitcoin, ether, the world's second-biggest cryptocurrency by valuation, Solana, XRP, Polkadot, and other cryptocurrencies and digital assets, and in particular bitcoin’s massive drop since November, depends on who you talk to.
Bitcoin Will Find a Bottom: Mike Novogratz
Mike Novogratz, cryptocurrency billionaire and founder of brokerage firm Galaxy Digital, believes that bitcoin could find a bottom at the $38,000-$40,000 level as those who believe in its finite nature and its ability to act as “digital gold” – and hence its ability to be a hedge against inflation – find a new comfort level.
A more specific factor behind bitcoin’s slide is the deadly political protests in Kazakhstan that have shut down its Internet service. The country accounts for 18% of the bitcoin network's processing power, according to the Cambridge Centre for Alternative Finance.
However, the theory that bitcoin serves as a hedge against rising inflation and falling stocks continues to be put to the test, especially given that a 40% drop in other types of assets like stocks or bonds would have spurred global panic by now.
Related: Crypto Investing Strategies In 2022
“Crypto is a risky asset, not a safe haven,” Spectra Markets President Brent Donnelly wrote in a recent commentary. “This has become even more true as Wall Street adoption has been an important theme.
“When the Fed tightens, all risky assets are less fun to own. When hedge funds and asset managers are getting killed on their tech stocks, they sell their crypto.”
Indeed, the accompanying decline in the value of crypto stocks like Coinbase Global (COIN) and U.S.-listed mining companies like Marathon Digital Holdings (MARA) - Get Marathon Digital Holdings Inc Report, Riot Blockchain (RIOT) - Get Riot Blockchain Inc Report and Bit Digital (BTBT) - Get Bit Digital, Inc. Report suggest institutional investors aren’t looking at bitcoin and other digital assets as a place to seek refuge or higher returns than other traditional areas of the markets.
Cryptocurrencies and Crypto Stocks Riding the Same Wave
Marathon, Riot and Bit Digital have dropped more than 50% each since Nov. 10, according to data from charting platform TradingView.
Argo Blockchain (ARBKF) , the only crypto miner listed on the London Stock Exchange, has declined by 45%, while Canadian crypto miners Hive Blockchain (HIVE) - Get HIVE Blockchain Technologies Ltd Report and Hut 8 Mining (HUT) - Get Hut 8 Mining Corp. Report have slipped 52% and 59%, respectively.
Bitcoin and other crypto believers refute that bitcoin and other digital assets are a passing fad – at least some of them.
“Some institutions use crypto equities as a proxy for crypto itself,” Mike Alfred, a value investor and CEO at BrightScope and Digital Assets Data, told CoinDesk. “It’s easier for hedge funds to buy COIN than it is for them to hold BTC directly for various reasons.”
Crypto converts see the latest down leg as another passing right of passage for holding something that is still new and not well understood, including some at venerable investment bank Goldman Sachs, who see the digital token not only recovering but rising past the $100,000 mark and overtaking gold as a store of value.
“The arc of history is long,” Graham Jenkin, chief executive officer of crypto exchange CoinList, told Bloomberg. “Over time bitcoin is going to be a pretty superior asset to invest in.”