Crypto Markets Shed Over $280Bn in Five Days, Bitcoin Hits Lowest Since July 2021

Key Points

• Cryptocurrency markets have shed more than $280 billion in value since last Wednesday.
• Bitcoin fell to its lowest levels since July 2021 under $33,000 per token.
• Losses come against the backdrop of falling global equities/rising bond yields on central bank tightening expectations.

The total cryptocurrency market capitalization looks on the verge of falling to its lowest level of the year after falling below $1.5 trillion this Monday.

Since last Wednesday, when the cryptocurrency’s market cap was just under $1.8 trillion, nearly $280 billion in value has been wiped out of existence.

The ugly start to May, which has already seen the cryptocurrency market shed over 10% of its value, comes after an even uglier April, during which time the market dropped nearly 20%.

Compared to early April highs just over one month ago, the total market cap of the crypto market cap has fallen by about $670 billion.

Unfavorable macro backdrop hurting crypto markets

An unfavorable macro backdrop characterized by volatile, bearish conditions in global equity markets, as well as a sharp upside in global bond yields, has been the primary factor weighing on crypto markets, in recent months.

Sky-high inflation in the US and other major economies as a result of the over-the-top fiscal and monetary response to the pandemic which, at the time, also disrupted global supply chains, and which has also been recently worsened as a result of the disruptive impact on the global economy from the Russo-Ukraine war, is driving major central banks (like the Fed) to quickly remove monetary accommodation.

In recent months, it has begun to dawn on markets just how high-interest rates in the US (and elsewhere) may have to rise in order to bring inflation under control.

That dawning realization seemed to go into overdrive following last week’s hawkish Fed meeting. Since that meeting, the US ten-year yield has jumped more than 20 bps to its highest level since December 2018 near 3.20%, taking its rise since the start of the year to about 170 bps.

Concerns about the rapid withdrawal of monetary accommodation (i.e. low-interest rates), coupled with increasing concerns in recent weeks about slowing global growth have weighed heavily on global equities.

High price/earnings ratio stocks have been particularly hard hit, with the rise in bond yields increasing the opportunity cost of holding stocks which yields relatively less.

Cryptocurrency markets have a close positive correlation to equities, particularly US tech, and so the recent downside has weighed heavily. Meanwhile, given their status as non-yielding assets, the rise in yields (which represents a rising opportunity cost) has also weighed heavily.

Bitcoin on the verge of major bearish breakout

Bitcoin (BTC) just hit its lowest level since July 2021 below the $33,000 mark. The cryptocurrency is already down over 12% on the month, over 30% versus its annual highs printed back in March, and is now down about 52% versus the record highs it printed last December in the $69,000 area.

Bitcoin bears are eyeing a breakout lower towards the 2021 lows in the $28,000s.

Technical momentum certainly seems to be pointing that way, with the 21, 50, and 200-Day Moving Averages all pointing lower and no further substantial levels of support after $33,000 all the way to the 2021 lows.

The price action in the second-largest major cryptocurrency Ethereum (ETH) is also looking ugly, with the cryptocurrency breaking below the $2,400 level per token, on Monday, for the first time since February.

ETH/USD does still remain some way (about 10%) above the annual lows it printed back in January in the mid-$2,100s, however, this will most certainly be a level the bears will be targeting.