Over the past week, the markets have been swinging Because of concerns that the ‘Omicron’ variant could impede economic recovery Globally, Bitcoin prices have remained surprisingly stable. Then came the weekend.
But during trading last Saturday, the cryptocurrency fell more than 20%, while it is now trading at around $50,000, down from about $57,000 at the beginning of December.
“We are seeing this persistent fear of the Omicron variable dominating the performance of the crypto market,” says Marcus Sotirio, a trader at digital asset broker Global Block.
Bitcoin proponents often tout the potential of it as a safe asset that trades independently of stocks, bonds and commodities, giving it a potential role for investors looking to offset their risks.
However, the decline in Bitcoin, which analysts have linked to lower investor and market sentiment, is a sign that the largest cryptocurrency remains closely linked to other parts of the market, especially as more institutions enhance their exposure.
And when markets pull back, investment managers offload their riskiest assets first. Jeroen Blokland, founder of research firm True Insights, believes that this trend makes cryptocurrencies, especially Bitcoin, vulnerable. “Bitcoin responded and collapsed once the sentiment of stocks and markets plummeted,” he added.
The sell-off was largely driven by institutional earnings from bitcoin before the end of the year due to rising uncertainty.
According to Soterio, “This market crash shows that bitcoin is not completely separate from global markets…it hasn’t reached that stage yet where it is big enough to hold.”
Meanwhile, the CNN Business Fear and Greed Index, which tracks market sentiment, is in “extreme fear” territory. Just a month ago, the index reading showed “extreme greed”.
But questions about the Omicron variable have scared investors and caused several big players to attempt gains for 2021. The S&P 500 is down more than 3% in the past two weeks, but is still nearly 21% higher so far this year.
Blockland sees one reason for bitcoin’s decline as weak weekend trading. “I don’t think the whole sentiment-driven rally is over,” he added.
But the sell-off serves as a reminder to professional investors that bitcoin is not insulated from market fears. In fact, the market can be more sensitive, because the asset class fluctuates three to four times as much as stocks. “The greater the volatility, the greater the decline,” Blockland added.