Crypto markets down nearly 70% from peaks: Will the carnage continue?

The meltdown across global equity markets is casting a spillover effect on the crypto markets as well.

With the global central bankers turning hawkish to abate inflationary pressures, lack of liquidity is resulting in fund vacuum in the crypto sphere too.

Reduced risk appetite, coupled with strengthening dollar, has also made investors exit crypto funds with outflows surging over $100 million last week.

That apart, popular assets like Bitcoin, Ethereum, Tether, Dogecoin and Shiba have shed up to 33% in the past seven days.

According to coinmarketcap.com, the market-cap of crypto markets has shrunk from $2.97 trillion, seen in November 2021, to about $950 billion now.

Analysts believe that the macro-economic stress and movement of money towards safe securities like government bonds in a rising interest rate sphere is contributing to the carnage of crypto assets.

Minal Thukral, Executive Vice-President, Growth and Strategy, CoinDCX says macro-economic stress correcting crypto prices. Money moving towards safe assets like bonds. Crypto likely to stay in bearish zone for the near-term.

It all began with the Lunna-Terra fiasco. The black swan event wiped out over $40 billion in market value after investors flushed out stablecoin - TerraUSD.

To add to the pressure, leading global crypto lender, Celsius Network, halted all transactions and withdrawals between accounts to stabilise liquidity.

In yet another development last week, a large cryptocurrency hedge fund is rumoured to be facing a 400 million dollars’ insolvency test. Grapevine hints that the company’s investment was wiped out in Luna.

Meanwhile, US crypto exchanges like Coinbase and Gemini have reportedly laid off 10-18% of their workforce due to weakening economic backdrop and crash in the crypto markets.

With the US Fed hiking interest rates, volatility in the crypto markets is here to stay. Indian investors, on their part, have been passive for months.

Rajagopal Menon, Vice-President, WazirX says inflation, monetary tightening to guide crypto markets. India’s new tax rules a big blow, he says. adding that inadequate banking channels eroding exchange volumes. Crypto markets likely to stay in weak zone for near-term.

Today, the US markets will remain closed on account of Juneteenth holiday. Later this week, investors will track the UK’s retail inflation figures for May, the US Manufacturing and Services PMI for this month.

Back home, oil prices, bond yields’ trajectory and stock-specific action will guide the equity markets.