- Cryptocurrency prices plunged hard as risks rise.
- Stocks, bonds, and other commodities also slipped.
- There are risks about China and the trend of interest rates.
Cryptocurrency prices were deep in the red on Thursday night, with Bitcoin plunging below $26,000 for the first time in months. The crypto market cap slipped by more than 6% to slightly above $1 trillion. Other worst-performing cryptocurrencies were XRP, ApeCoin, Bitcoin Cash, and Aptos.
Stocks and bonds plunged also
It is worth noting that cryptocurrencies were not the only financial assets in the red. Global stocks dropped sharply, with the Dow Jones, Nasdaq 100, and S&P 500 falling by 0.85%, 0.77%, and 1.17%.
The same trend happened around the world, with Canada’s TSX, German DAX, and French CAC 40 falling by more than 0.50%. In Asia, the Hang Seng, Nikkei 225, and China A50 declined by 0.60%.
Most importantly, the bond market also plunged, pushing Treasury yields and mortgage rates to the highest level in years. Mortgage rates jumped to 7.10%, the highest level in over 20 years while the 30-year and 10-year yield surged to a decade high.
Therefore, since there was no crypto-specific news, we can assume that the price action among these assets was related. Historically, crypto and stocks tend to have a close correlation with each other.
Meanwhile, the US dollar index (DXY) and the CBOE VIX index rose, signaling that investors have embraced a risk-off sentiment. The VIX jumped to $17.89 while the DXY index roared to $103.20. And as I wrote yesterday, the fear and greed index has retreated.
Macro risks remain
There are several reasons why these assets are plunging. First, there are contagion risks as the Chinese economic recovery stalls. Earlier this week, data from the country showed that fixed asset investments and retail sales rose at a slow pace in July.
Some large companies are also on the verge of collapsing. Evergrande, the giant real estate company, filed for bankruptcy protection in New York. Similarly, Country Garden has warned that it is nearing collapse as liquidity dries. It expects to make a loss of over $7.5 billion in the first half of the year.
China is an important market for both cryptocurrencies and other assets since it is the second-biggest economy in the world. And most companies have an exposure to the economy in some ways.
Also, while cryptocurrencies are banned in China, there is evidence that many people still trade the assets. China is the biggest market for Binance and Huobi, two of the biggest firms in the industry.
