Crypto sell-off deepens as weak economic data dampens risk-taking

The plunge marks a stunning reversal for the sector

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By Reuters

Published: Mon 5 Aug 2024, 10:19 PM

U.S.-listed shares of crypto-linked companies slumped as bitcoin fell more than 15% on Monday, after weak economic data last week triggered fears of a recession and set off a frenzied selling of risky assets.

The plunge marks a stunning reversal for the sector that until recently was riding a wave of optimism sparked by the approval of exchange-traded funds (ETFs) tied to the spot prices of bitcoin and ether, the two biggest cryptocurrencies.

Republican presidential candidate Donald Trump's pro-crypto speech at a bitcoin conference last month also bolstered sentiment, but data showing higher unemployment and weak manufacturing activity squeezed risky assets.

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"We are not surprised by Bitcoin's snap reaction as the only weekend traded market. We don't see any incremental negatives for crypto here," Bernstein analyst Gautam Chhugani wrote in a note.

"The bitcoin and crypto market will likely trade off macro and election cues for most of (the third quarter)."

Crypto miners CleanSpark, Bitfarms, Riot Platforms and Marathon Digital slumped between 12% and 25% in early trade.

Coinbase shares lost 18%, while bitcoin buyer MicroStrategy slipped nearly 23%.

Bitcoin tumbled to its lowest in nearly six months while ether plunged 19%, trading at levels not seen since January.

BITCOIN OVER ETFs

The increasing correlation with equities has undermined bitcoin's reputation as a safe-haven asset, but some analysts said investing directly was still better than getting exposure to the currency via proxies like ETFs and crypto-related stocks.

"If this weekend serves as a reminder of anything, it is the importance of investing in digital assets directly on native crypto exchanges," said Joshua Peck, founder of crypto hedge fund TrueCode Capital.

"While others were stuck waiting for the futures market to open on Sunday night... we were calmly executing our strategy without interruption," he added.

Still, others advocated caution.

"It's a big reminder that bitcoin and crypto in general are risk assets and sit at the pointy end of the risk spectrum," said Tony Sycamore, market analyst at IG.

Reuters

Published: Mon 5 Aug 2024, 10:19 PM

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