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Bitcoin plunge follows tighter tracking with US Tech 100

By Robert Davis

18:13, 21 January 2022

Bitcoins on cryptocurrency background concept
Bitcoin falls below $40,000 in tandem with Nasdaq 100 - Photo: Shutterstock

Bitcoin traders woke up to a startling surprise on Friday as the asset dipped below the $40,000 mark, dragging the rest of the market down with it.

The move erased more than $200bn (£147.49bn) from the market capitalisation as bitcoin and other popular assets slid by more than 10% from their prices on Thursday.

By 17:30 UTC, bitcoin was trading at just over $38,000 per unit while assets like ethereum and cardano declined even further. Ethereum was trading at around $2,700 for the first time since late September while cardano traded at $1.20, representing a drop of more than 13% on the day.

Nasdaq selloff

The crypto market’s correlation with the stock market has some investors fleeing for higher ground as Friday’s selloff correlated with a broader selloff in the tech-heavy Nasdaq Composite Index. 

Bitcoin is traditionally known as an uncorrelated asset, but its 100-day correlation coefficient between the coin and the Nasdaq rose above 0.49 on Thursday, marking the highest correlation between the two since 2011, according to Dow Jones market data.

Over the last week, the Nasdaq has lost more than 5% of its value compared to a greater-than 10% drop experienced by bitcoin.

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Crypto mining stocks down 

The move has dragged crypto mining stocks down considerably as well. Stocks such as Riot Blockchain, Hut8, and Marathon Digital Holdings have all lost more than 10%, with Riot leading the way at a 20% drop over the last five trading sessions.

Riot blockchain is currently trading at $15.81 per share, its lowest point since December 2020. Hut8 is trading at $5.58, more than $10 per share off its record-high in November 2021.

Marathon Digital Holdings is trading at $22.86 per share, more than 7% below its initial public offering price.

Russia’s central bank

News that Russia’s central bank will move to completely outlaw cryptocurrencies also aided in the decline. 

The ban includes both the use of cryptocurrencies as money and crypto mining activities, which are important to both generate more supply and ensure the viability of the blockchains.

A report issued by the central bank said cryptocurrencies are commonly used for illegal activity and fraud, which can inspire people to take their money out of the economy. Regulators said this makes their job much more difficult and can negatively impact the country’s monetary policy.

XRP/USD

0.57 Price
-9.630% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168

ETH/USD

3,417.35 Price
-0.060% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00

DOGE/USD

0.12 Price
-3.480% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.0012872

BCH/USD

384.70 Price
+1.780% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 2.50

Last November, the bank said Russians conduct over $5bn worth of cryptocurrency transactions every month.  

Correlation to stock market

Friday’s selloff also correlated with a broader selloff in the tech-heavy Nasdaq Composite Index, as the crypto market and the stock market becomes more closely intertwined.

Bitcoin is traditionally known as an uncorrelated asset, but its 100-day correlation coefficient between the coin and the Nasdaq rose above 0.49 on Thursday, marking the highest correlation between the two since 2011, according to Dow Jones market data.

Over the last week, the Nasdaq has lost more than 5% of its value compared to a greater-than 10% drop experienced by bitcoin.  

The move has dragged crypto mining stocks down considerably as well. Stocks such as Riot Blockchain, Hut8, and Marathon Digital Holdings have all lost more than 10%, with Riot leading the way at a 20% drop over the last five trading sessions.

Riot blockchain is currently trading at $15.81 per share, its lowest point since December 2020. Hut8 is trading at $5.58, more than $10 per share off its record-high in November 2021.

Marathon Digital Holdings is trading at $22.86 per share, more than 7% below its initial public offering price.

Supply in profit

As the market takes an overall downturn, the total supply in profit for bitcoin has shrunk.

Supply in profit refers to the number of coins in circulation that are currently worth more than when they were created.

According to data from Delphi Digital, a crypto analytics firm, only two-thirds of the bitcoins in circulation are currently profitable.

Analysts Genevieve Yeoh and Joo Kian said the percentage of supply in profit “tends to point to a mid-term bottom,” but not always.

Read more: Australia’s Macquarie and Blockstream to explore green bitcoin mining

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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