On Friday morning, as the world struggles with the news of another COVID-19 variant, Cryptocurrencies dropped across the market. Stock markets fell in premarket trading, but cryptocurrencies, which trade 24 hours a day, started dropping shortly after midnight ET.
Bitcoin (BTC) has been falling for nearly a month now, but that trend accelerated early Friday. The value of the largest cryptocurrency went down by 7% in the last 24 hours as of 9 a.m. ET. It has plunged by about 21% since reaching $69,000 early in November. Smaller cryptocurrencies fell even harder in the past 24 hours, with Ethereum (ETH) down 9%, Dogecoin (DOGE) dropping 8%, and Solana (SOL) falling 8.3%.
The World Health Organization scheduled a special meeting today on a new variant of COVID-19 that is spreading in South Africa and more countries. Data is incredibly early, but this variant has been associated with greater transmissibility and more resistant evasion than previous strains.
Cryptocurrencies were not the only assets to drop today. Oil is down 6.5%, and premarket stock markets are down between 1% and 2% as well. This is a large sell-off, and cryptocurrencies just happen to be one thing investors are selling.
Today’s readings look to be what is known as a risk-off trade. Investors sell risky assets in favor of cash or safer assets like Treasuries. It should come as no surprise, then, that 10-year treasury yields in the United States have fallen ten basis points to 1.53% as investors bid up government debt.
It is worth noting that Friday is a short trading day as the weekend approaches, and this brings instability as Wall Street traders take time off. This can lead to some bigger than usual turns, which could be magnifying the trading today.
Given the fact that cryptocurrencies are more volatile within the market overall, it is no surprise that they are magnifying the market’s turns. What is clear across the board is that this is also a risky move by the market. It is not clear how this strain of COVID-19 will spread or where or what the economic impact will be. For now, traders are speculating that it will harm markets and force central banks to keep interest rates low for longer. In time, we will see if that happens.
What I think is clear today is that cryptocurrencies are in turmoil for the moment. Values are down 20% or more in many cases, and if investors are no longer buying risk assets on fear of an economic slowdown from COVID-19, which may not be followed by trillions of dollars in incentives, as it was over the past 18 months, So far, crypto has not been a hedge against the markets falling and has in fact magnified the market’s reactions, which is happening again today.
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