In recent days, Bitcoin has fallen significantly faster than other cryptocurrencies such as Ethereum, which may highlight the increasingly close connection between Bitcoin and the macro situation. On Saturday, Bitcoin fell by 21% and is currently close to $48,200, which is about 10% lower than the closing price on Friday. Ethereum fell by 17% on Saturday, then began to rebound, quickly recovering to more than $4,000.
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Sean Farrell, Head of Digital Asset Research at Fundstrat, said in a report on Sunday that, compared to Bitcoin, other cryptocurrencies recover much faster from events that created macro uncertainty. These events include omicron variants, the Federal Reserve’s accelerated downsizing, and changes in the derivatives market.
In the past year or so, with the maturity of the market, the increase in products, and the gradual clarity of judicial supervision, large investors have been accelerating the purchase of Bitcoin. This is generally considered to be a factor that may boost the price of Bitcoin, but the recent plunge shows that the entry of big players may be a double-edged sword.
The weekend’s plunge could become a turning point. Previous analysis by Cornerstone Macro found that the downside risk of Bitcoin is not as great as that of Ethereum. But as institutions begin to pour into Bitcoin, Bitcoin may be more susceptible to capital flows.
“Ethereum is usually associated with the growth of decentralized finance (DeFi) and non-homogeneous tokens (NFTs) and other cryptographic sub-sectors, but has not much connection with anti-inflation transactions, so it is not affected by the Fed’s hawkish comments. Negative impact.” FRNT Financial Inc. CEO and co-founder Stephane Ouellette said on Sunday.
The weekend’s plunge once again reminded people that cryptocurrency is a developing asset class and can be extremely unstable. Despite this, Ethereum has risen more than five times so far this year, Bitcoin has risen by about 70%, while the S&P 500 has risen by 20%, and the MSCI Global Index has risen by 11%. The Bloomberg Barclays Global Aggregate Bond Index has a slightly negative total return.
The increasing institutionalization of Bitcoin “may explain the massive sell-off in the Bitcoin market last Friday night,” Fundstrat’s Farrell said. “Traditional institutions want to maintain annual earnings before the end of the year.”
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