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The time when investors looked at cryptocurrencies as a medium for hedging funds against a stubbornly rising inflation, seems to have faded unexpectedly. On Monday, the crypto market was bleeding red to the point its valuation erased the $1 trillion mark. Cryptocurrencies are on many occasions compared as a better safe haven than gold which has been a traditional resort during steep selloffs in stocks. But now, there is a curious case of the crypto market tracking the bearish sentiment in global stocks.
According to CoinMarketCap real-time performance data, the global crypto market cap nosedived by 15.28% to $944.92 billion over the last day. However, in volume terms, the market jumped 73.92% to $147.17 billion over the last 24 hours. The total volume in DeFi is currently $10.17 billion, 6.91% of the total crypto market 24-hour volume. The volume of all stable coins is now $133.44 billion, which is 90.67% of the total crypto market's 24-hour volume.
Crypto market leader Bitcoin dived to its lowest level in 18 months and erased the $23,000 mark. Bitcoin was currently around $22,826.09 down by over 18%. Its market cap stood at around $436.70 billion. The cryptocurrency's dominance dipped by 1.07% to 46.30% over the day. With the latest downside, Bitcoin's weekly drop is more than 27%.
Bitcoin's counterpart Ethereum plunged by over 21% and was trading around $1,196.43. Ether's market cap stood around $143.76 billion.
Talking about the crypto market's performance, Rajagopal Menon, Vice President, WazirX said, “Crypto markets have seen a correction due to weak global cues. Internationally, stock and crypto markets have become highly correlated."
Menon further said, "The inflation rate globally has also been a major concern for investors. In the US, it is at a 40-year high at 8.6%, and in the UK at 9%; interest rate hikes across major crypto nations are also a growing concern as they lessen liquidity. Both the indicators have led to a massive sell-off," adding, "In India, the central bank raised the full-year forecast for the FY23 consumer price index to 6.7%, which is more than the target, and the Indian rupee has hit a record low of 78.28."
On Monday, Wall Street extended its losses with the S&P 500 shedding over 20% from its record as fears of possible recession intensifies due to worsening multi-decade high inflation. At 11:19 am GMT-4, S&P 500 index dropped over 3.3%, while its counterparts Dow Jones Industrial Average shed nearly 2.4% and the Nasdaq index fell nearly 4%.
As per a Bloomberg report, the S&P 500 was 21.3% below its record set early this year. If it finishes the day more than 20% below that high, it would enter what investors call a bear market.
On the Asian front, South Korea's KOSPI was the worst hit with a more than 3.5% tumble, while Hong Kong's Hang Seng and Japan's Nikkei 225 dropped over 3%. Australia's S&P/ASX slipped 1.25%. While Sensex dropped 2.68% and Nifty 50 declined 2.64%. China's Shanghai Composite settled below 0.89%. Markets here were swayed also by worries over the COVID-19 situation in China as it is now expected that authorities to resume tough, business-slowing restrictions.
In the European market, Germany’s DAX and the French CAC 40 fell over 2.7% each. The FTSE 100 in London dropped 1.4%.
Why are stock markets in deep red?
Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services said, "Globally markets have turned weak on inflation fears. It is important to appreciate the fact that globally markets are highly integrated. The mother market, US, sets the trend and others follow. US markets are weak on worse-than-expected inflation ( 8.6% in May vs an expectation of 8.3%) and markets expect aggressive monetary tightening by the Fed. This is unfavourable to risky assets like equities. Rising dollar and bond yields in US will force more selling by FPIs in India."
"This market turbulence is an opportunity for investors to buy stocks which are beaten down due to FPI selling but have improving fundamentals," Vijayakumar added.
Going forward, Vinod Nair, Head of Research at Geojit Financial Services said, "We will continue to trade with high volatility, however medium to long-term risk takers, should start chip-in to the market because this could be in the last phases of the consolidation."
Pankaj Pandey, Head – Research, ICICIdirect said, "On the equity market outlook, while we believe volatility may remain in the near term, the recent trough gives an opportunity to the long-term investors to load up on quality companies with sustainable growth visibility. On the medium term, we continue to remain constructive on domestic consumption, capital goods and allied space and domestic manufacturing plays. "
Will cryptocurrency's bearish tone fade in the near term as well?
WazirX Vice President said, "the investors have adopted a wait-and-watch stance as the early indicators are in the red. We expect this bearish market trend to persist in the near short term."
