Cryptocurrency-related stocks plummeted all at once

Cryptocurrency markets took a huge hit on Friday in the wake of the weak U.S. stock market. Bitcoin (BTC) fell below the $66,000 level, and related stocks all fell sharply.

Cryptocurrency exchange Coinbase (COIN) and digital asset company Galaxy (GLXY) fell about 7%, and Gemini (GEMI) recorded the biggest decline, falling nearly 9%. Cryptocurrency-friendly broker Robinhood (HOOD) also fell nearly 6% despite expanding share repurchases.

Companies adopting Bitcoin-linked financial strategies also performed poorly. Strategy (MSTR) and TwentyOne Capital (XXI) plummeted by about 6%, and Ethereum-centered Bitmine Emergence (BMNR) and SharpLink Gaming (SBET) also fell by about 5%.

Mining companies also suffered significant losses. Riot Platforms (RIOT), Cleanspark (CLSK), IREN, Hive Digital (HIVE), and Hut 8 (HUT) fell 5-8%. MARA and BTDR, which showed an upward trend the previous day, also fell 6% and 8%, respectively, giving back all their gains.

Why it matters: $17 trillion market capitalization evaporates

This sharp drop is not a simple correction in the cryptocurrency market. As the U.S. Federal Reserve (Fed) faces a complex economic situation, the entire risk asset market is falling.

Richmond Federal Reserve President Tom Barkin warned that rising oil prices could hurt consumer spending and called the employment situation "vulnerable." Philadelphia Federal Reserve President Anna Paulson said the Iran war had created "new risks to both inflation and growth."

The yield on 10-year Treasury bonds was close to 4.5% at one point on Friday, but turned downward after comments from central bank officials. The two-year yield, which is more sensitive to Federal Reserve policy, rose to 4.03% and then fell to 3.91%.

What is noteworthy is the change in investors’ expectations. The mood that expected an interest rate cut this year is changing to concerns that the Federal Reserve may raise interest rates to combat rising inflation.

Due to the sell-off in recent months, approximately $17 trillion in market capitalization, including the Magnificent Seven (7 major technology stocks including NVIDIA, Google, and Microsoft), gold, silver, and Bitcoin, has evaporated from its peak.

When did this trend start: 45% plunge from October peak

Bitcoin reached an all-time high of $126,000 in early October. Gold, silver, and the U.S. stock market peaked at the end of January and then reversed sharply.

The declines by asset since then are as follows:

• Bitcoin: down about 45%
• Silver: down about 45%
• Gold: down about 20%
• The Magnificent Seven: both fell by double digits

The Nasdaq 100 index, centered on technology stocks, has entered a correction phase, falling more than 10% from its all-time high in January. The broader S&P 500 index is also approaching correction territory, down 8.5%.

The bond market was also hit. The iShares 20+ Year Treasury Bond ETF (TLT) was down about 0.3% on Friday and is down 5% in the month since the Middle East conflict began in late February. During the same period, the S&P 500 fell about 6%, highlighting the poor performance of the traditional 60/40 portfolio.

Future outlook [AI analysis]

A repeating pattern has been observed in the market since the end of February when the Middle East conflict began. On Mondays, there is an average rise of around 3% due to relief that the 'Black Monday' scenario has not materialized, but as the middle of the week approaches, it turns into a bearish trend as profit-taking listings appear.

In particular, as optimism about the reopening of the Strait of Hormuz fades, the 'risk-off' trend appears to be strengthening on Thursdays and Fridays, with investors reducing risky assets ahead of the weekend.

As the Federal Reserve's policy direction is likely to shift from lowering interest rates to raising interest rates, downward pressure on risk assets, including Bitcoin, is likely to continue for the time being. Until geopolitical uncertainty is resolved, volatility in the cryptocurrency market is expected to increase.

Investors are expected to be aware of the repeating pattern of Monday rebounds and Friday declines and need to manage their positions in preparation for weekend risks.