• October 7, 2022

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Topline

The cryptocurrency market fell victim to a massive selloff on Monday as several large exchanges either halted sales or announced layoffs, and with Bitcoin plunging to its lowest price in 18 months, experts warn that the ongoing “bloodbath” will only result in more selling pressure on stocks.

Key Facts

The price of Bitcoin dropped 17% to below $23,000 on Monday, its lowest level since December 2020, after crypto lending company Celsius first sparked fears by suspending withdrawals due to “extreme market conditions.”

Amid the selloff, Binance was forced to halt its exchange due to a backlog issue, while crypto firm BlockFi later announced it was laying off 20% of its workforce due to the challenging market environment.

Experts say that the crypto collapse on Monday is yet another sign of the risk-averse sentiment in markets, as investors flee to safer bets amid a backdrop of rising rates and recession fears.

“The cryptocurrency bitcoin has been a great gauge of investors’ risk threshold for equities” and the recent plunge in prices can only mean more bad news for the broader stock market, predicts JC O’Hara, chief market technician at MKM Partners.

“We could easily see a pullback [in Bitcoin prices] to $19,500,” he predicts, adding a continued selloff would certainly be a “bearish read through for stocks.”

It has been “a rough few days for crypto traders” as confidence in crypto markets “took a big hit” amid the “bloodbath” that has occurred, says Oanda senior market analyst Edward Moya.

Chief Critic:

“The Celsius news is a byproduct, not a cause, of the crypto implosion,” says Vital Knowledge founder Adam Crisafulli. “Crypto has proven itself to be nothing more than a vehicle for speculation… its absence of real-world, tangible utility makes it extremely difficult to try and call a bottom.”

Crucial Quote:

While experts are unable to predict a bottom for plunging crypto prices, Bitcoin has been “attempting to form a base,” according to Moya. If the price falls below $20,000, however, the situation “could get even uglier.”

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What To Watch For:

Stocks tanked again on Monday, with the S&P 500 falling into bear market territory as investors have spurned riskier assets amid fears of rising interest rates and record-high inflation. Markets are now looking ahead to Wednesday, with the Federal Reserve largely expected to hike rates by 0.50% at its upcoming policy meeting. A hotter-than-expected inflation reading in May—with consumer prices jumping 8.6% compared to a year ago—has added uncertainty about whether the Federal Reserve will be more aggressive than forecast in raising rates. Several major Wall Street firms, including Barclays and Jefferies, recently predicted the central bank will be forced to raise rates by 0.75% at the upcoming meeting.

Further Reading:

Dow Plunges 700 Points, S&P 500 Enters Bear Market Territory As Inflation Fears Roil Markets (Forbes)

Crypto Crash Deepens: Market Drops Below $1 Trillion, Bitcoin Falls To 2020 Levels (Forbes)

Dow Plunges Nearly 900 Points After ‘Very Troubling’ Inflation Report Fuels Fears Of Impending Recession (Forbes)

How Does The Market Perform During An Economic Recession? You May Be Surprised (Forbes)

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