Leading cryptocurrency Bitcoin today falls below the psychological $20,000 mark again and drags smaller cryptocurrencies with it. Ethereum is approaching the $1,000 mark. The declines are fueled by weakened sentiment on stock market indices and a weak session yesterday overseas.
- The drop in investor sentiment toward risky assets just ahead of another season of quarterly results from Wall Street companies clearly worries bulls, who were hoping for a rebound;
- It is unclear whether the retreat of buyers means that big players already know that the results will again negatively disappoint the markets, or whether it has more to do with psychology. The disastrous first half of the year seems to have accustomed investors to the idea that if something can go wrong, it probably will;
- Cryptocurrencies in the past have often proved to be an important harbinger of further movements in stock indexes, which are 'on the front line' in the face of heightened volatility. Some bulls believe that if the Wall Street season were to surprise positively, the cryptocurrency sector should have already begun to rebound. Poor performance and renewed panic in the indexes could pull the price of the 'king of cryptocurrencies' down to the $13,000 area;
- Bitcoin is showing divergence with inflation-adjusted bond yields. Real yields have risen 172 basis points this year, in the U.S., and are putting pressure on risky assets that investors are more likely to return to in a more favorable macro environment. The record negative correlation indicates that breaking through the June lows is now 'on the table'.
- Inflation is not yet showing clear signs of slowing, and a hawkish Fed may slowly 'melt down' cryptocurrency valuations. Markets are pricing in a 90% probability of another 75bp hike in July. Fed funds futures are also pricing a 50 bps hike in September and 25 bps in November and December;
- The markets are concerned about the ongoing phenomenon of investor hoarding. Thesesurization means a massive withdrawal of funds from the stock markets and 'waiting with cash and stable assets for future market opportunities'. This process is confirmed by Bitcoin's record outflows from cryptocurrency exchanges despite recent price declines and falling transaction volumes. In theory, price declines should cause Bitcoin to flow from private wallets to exchanges from where the cryptocurrency can only be sold.
