- Cryptocurrency prices have nosedived in the past few weeks.
- There are signs of rotation from crypto to stocks and bonds.
- The volume of cryptocurrencies traded in exchanges has dropped.
It was a sea of red in the crypto industry this week as Bitcoin price dropped below an important support level. Most cryptocurrencies, even those that soared earlier this week, nosedived. Sei price retreated by more than 20% on Thursday while Shiba Inu, Hedera Hashgraph (HBAR), Compound, Bitcoin Cash, and EOS retreated by over 5%.
America’s savings are depleting
One reason why cryptocurrencies are struggling is that Americans are depleting the excess savings they accumulated during the pandemic. Data by San Francisco Fed shows that Americans hold about $190 billion in aggregate savings, the lowest level in years.
Worse, many Americans with student debt will start paying back the funds in the next few months. As a result, many people are doing a few things to boost their finances. First, they are allocating funds to the stock market, which is doing better than digital currencies.
Second, they are moving to the safety of the bond market. Data shows that Treasury yields have jumped in the past few days. The 230-year bond yield surged to the highest level since 2008. The ten-year yield rose to 4.3% as shorter-term yields retreated. This performance accelerated after the Fed published mildly hawkish minutes.
China risks remain
The other reason why cryptocurrencies like Hedera Hashgraph and EOS have plunged is China. Earlier this week, the country published a data dump that missed expectations. Industrial production, fixed asset investments, and retail sales rose at a slower pace than expected.
To make matters worse, the country’s property market is collapsing. Last week, Country Garden, a leading company with over $200 billion in debt, missed its bond payments. It also warned that it will have a loss of over $7.5 billion in the first half of the year.
Therefore, there is a high possibility that the company will colllapse as Evergrande did in 2021. Other large companies have started to miss their payments. As such, investors are worried about contagion effects.
Most importantly, while China has banned cryptocurrencies, it is still a major player in the sector. Recent reports showed that China is the biggest market for Binance.
Crypto demand is waning
The 3rd reason why these coins and tokens are plunging is that demand for cryptocurrencies is waning. A good way to look at this is through the volume of cryptocurrencies traded in exchanges.
Data compiled by The Block shows that the volume of cryptocurrencies traded has been falling. In July, it plunged to the lowest level in more than two years. Further data shows that open interest in the futures market has also moved downwards.
Another evidence to this is that Bitcoin price has struggled to move above the important resistance level at $30,000. And on Thursday, Bitcoin made a bearish breakdown and retested the support at $28,000.
