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Crypto market falls as investor sentiment sours

By Robert Davis

17:02, 15 December 2021

Cryptocurrency in the form of coins
Cryptocurrency values fall before Federal Reserve meeting - Credit: Shutterstock

The cryptocurrency market was awash in red on Wednesday morning as investor sentiment soured and stablecoin transfer volume continued to increase.

Large-cap assets like Bitcoin and Ethereum fell considerably over the last 24 hours. Bitcoin dropped 4% from a high of just over $48,600 overnight to just under $46,000 by 15:30 UTC.

Ethereum’s fall was steadier, dropping by 2% over the last 24 hours to a monthly low of $3,700.

Conversely, decentralised finance (DeFi) assets like Avalanche and protocol tokens like Elrod rose by 9.4% and 6.3%, respectively. Avalanche was trading at $89.97 per coin and Elrod traded at $261.90 per token.

Investor sentiment

Joo Kian, an analyst at Delphi Digital, wrote in a note to investors that macroeconomic concerns such as inflation and the Federal Reserve Bank’s monetary policies are causing some crypto holders to sell-out.

For example, the Bureau of Labor Statistics reported last Friday that wholesale prices increased by 9.6% in November, the largest spike since the 1980s.

While Bitcoin was jumping between 3% and 4% before the announcement, the asset has fallen by more than 7% since. Moreover, Bitcoin is trading 30% below its previous all-time-high reached in mid-November

ETH/USD

3,505.33 Price
+2.590% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00

SOL/USD

172.00 Price
+8.200% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 2.2652

BTC/USD

66,776.95 Price
+4.590% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 106.00

DOGE/USD

0.13 Price
+5.830% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.0012872

Kian said this is indicative of investors becoming more fearful of Bitcoin as a hedge against inflation.

Meanwhile, the Fed has signaled that it will accelerate the end of its asset purchasing program, which Kian said could cause another liquidity crisis for cryptocurrencies to unfold.

Stablecoin volumes

The macroeconomic concerns cited by Kian also seem to be driving investors toward stablecoins and other less-volatile crypto assets.

According to trading data from Glassnode, stablecoin transfer volumes increased by a combined $57bn on Tuesday compared to the typical $10bn to $20bn that are the assets normal daily volume.

Kian said the transfer volume could “create more dry powder for investors” who are looking to buy the dip.

Read more: Shiba Inu beats dogecoin, becomes 8th largest cryptocurrency

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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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