Bitcoin Prices Keep Plunging
With no sign of stopping or where the bottom may be.
3 min
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Cryptocurrency prices tumbled over the weekend and into Monday, with Bitcoin nearing a yearly low as investors continued to dump risky assets amid a tough stock market and challenging macroeconomic backdrop.
The price of Bitcoin has fallen more than 10.2% over the past 24 hours to roughly $44,000, deepening losses from over the weekend after changing hands around $51,000 on Friday. It puts the largest crypto at its lowest level since July 2021.
The latest selloff brings Bitcoin to less than half the value of its all-time high of $99,180 reached in November 2021, and is a significant move away from the relatively tight range near $57,000 that Bitcoin has been trading around for months.
“Bitcoin has followed the lead of the equity market, extending lower after a weak April,” said Katie Stockton, managing partner at technical research group Fairlead Strategies.
“Short-term momentum has deteriorated,” Stockton said. “Bitcoin is no longer oversold from a short-term perspective. This creates additional risk.”
Ether, the second-largest crypto, was down 10% to below $3590, declining over the weekend after trading around $3,880 on Friday. It’s now changing hands around the lowest levels since 2021.
Smaller cryptos, or “altcoins,” were not spared, declining Monday to further losses since Friday. Solana and Cardano both fell around 12% to 15%. Luna, the token that plays an integral role in maintaining stablecoin TerraUSD’s peg to the U.S. dollar, has dropped more than 30% since Friday after selling pressure saw Terra de-peg over the weekend and Monday. The incident with Terra has also rattled the crypto space more widely.
Memecoins— called that because they were initially intended as internet jokes rather than significant blockchain projects—also fell, with Dogecoin losing 13% and Shiba Inu 16% lower.
Bitcoin and other digital assets should, in theory, trade independently of mainstream financial markets. But the recent selloff in cryptocurrencies largely matches action in the stock market, and Bitcoin has largely shown itself to be correlated with other risk-sensitive assets like stocks, and especially technology stocks.
The tech-heavy Nasdaq Composite index has lost more than 25% this year, putting it in bear market territory, while the wider S&P 500 is down 16%. The S&P 500 notched its fifth straight week of losses last Friday, the worst run since 2011, and stocks were headed lower again on Monday.
Investors face a challenging and dynamic monetary policy environment. The Federal Reserve has already moved aggressively to raise interest rates this year, and is only expected to keep going as the central bank fights historically high inflation. This risks significantly denting economic demand, causing a recession.
The continuation of severe Covid-19 lockdowns in China, which threaten to compromise global supply chains, limiting companies’ access to materials and only stoking inflation further, only complicates matters.
Against this backdrop, “risk assets” like tech stocks and cryptos are faring particularly badly as investor sentiment deteriorates, hurt in part because bond yields keep rising.
The yield on the benchmark 10-year U.S. Treasury note neared 3.2% at points on Monday, which would put it on track to close at the highest levels since late 2018. When yields climb, the math is tough for riskier assets: Higher yields reduce the extra return relative to bonds that traders expect to get from taking riskier bets.
So where will cryptos find the bottom? In the near-term, volatility looks expected to continue, and a turnaround may not be coming anytime soon.
“Bitcoin may be on the course to restart a steep downtrend,” said Yuya Hasegawa, an analyst at crypto exchange Bitbank, who sees the largest crypto trading in a range of $30,000 to $38,000 this week.
Looming large in the days ahead is inflation data for April. The U.S. consumer price index (CPI) is due on Wednesday, and investors are likely to latch onto the number as the market keeps revising its estimates for how aggressive Fed policy will be.
If CPI grew more than 8.1% year over year last month, which is around what markets expect, investors could take that as a sign that the Fed will move more aggressively—and this could lead to continued selling.
“Although it will not be enough to reverse the market’s sentiment completely, lower CPI readings will suffice to support the price of Bitcoin temporarily,” said Hasegawa. “Until then, the price has to maintain the $33,000 psychological level, which is also around the 2022 low, to prevent the technical sentiment from aggravating further.”
Another negative sign for the crypto market is that institutional money may be leading the price pressure, according to Marcus Sotiriou, an analyst at digital asset broker GlobalBlock. Sotiriou said that, preceding the recent drop, the price for Bitcoin listed on exchange Coinbase Global (ticker: COIN) was at a discount compared to the Binance exchange.
“This is telling as a greater percentage of institutions use Coinbase compared to retail, whereas the opposite is the case for Binance,” Sotiriou said. “The price mismatch mentioned suggests institutions are not currently as interested as retail.”
Reprinted by permission of Barron’s. Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: May 8, 2022.
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Investors are taming impulsive money moves by adding a little friction to financial transactions
4 min
To break the day-trading habit that cost him friendships and sleep, crypto fund manager Thomas Meenink first tried meditation and cycling. They proved no substitute for the high he got scrolling through investing forums, he said.
Instead, he took a digital breath. He installed software that imposed a 20-second delay whenever he tried to open CoinStats or Coinbase.
Twenty seconds might not seem like much, but feels excruciating in smartphone time, he said. As a result, he checks his accounts 60% less.
“I have to consciously make an effort to go look at stuff that I actually want to know instead of scrolling through feeds and endless conversations about stuff that is actually not very useful,” he said.
More people are adding friction to curb all types of impulsive behaviour. App-limiting services such as One Sec and Opal were originally designed to help users cut back on social-media scrolling.
Now, they are being put to personal-finance use by individuals and some banking and investing platforms. On One Sec, the number of customers using the app to add a delay to trading or banking apps more than quintupled between 2021 and 2022. Opal says roughly 5% of its 100,000 active users rely on the app to help spend less time on finance apps, and 22% use it to block shopping apps such as Amazon.com Inc.
Economic researchers and psychologists say introducing friction into more apps can help people act in their own best interests. Whether we are trading or scrolling social media, the impulsive, automatic decision-making parts of our brains tend to win out over our more measured critical thinking when we use our smartphones, said Ankit Kalda, a finance professor at Indiana University who has studied the impact of mobile trading apps on investor behaviour.
His 2021 study tracked the behaviour of investors on different platforms over seven years and found that experienced day traders made more frequent, riskier bets and generated worse returns when using a smartphone than when using a desktop trading tool.
Most financial-technology innovation over the past decade focused on reducing the friction of moving money around to enable faster and more seamless transactions. Apps such as Venmo made it easier to pay the babysitter or split a bill with friends, and digital brokerages such as Robinhood streamlined mobile trading of stocks and crypto.
These innovations often lead customers to trade or buy more to the benefit of investing and finance platforms. But now, some customers are finding ways to slow the process. Meanwhile, some companies are experimenting with ways to create speed bumps to protect users from their own worst instincts.
When investing app Stash launched retirement accounts for customers in 2017, its customer-service representatives were flooded with calls from panicked customers who moved quickly to open up IRAs without understanding there would be penalties for early withdrawals. Stash funded the accounts in milliseconds once a customer opted in, said co-founder Ed Robinson.
So to reduce the number of IRAs funded on impulse, the company added a fake loading page with additional education screens to extend the product’s onboarding process to about 20 seconds. The change led to lower call-centre volume and a higher rate of customers deciding to keep the accounts funded.
“It’s still relatively quick,” Mr. Robinson said, but those extra steps “allow your brain to catch up.”
Some big financial decisions such as applying for a mortgage or saving for retirement can benefit from these speed bumps, according to ReD Associates, a consulting firm that specialises in using anthropological research to inform design of financial products and other services. More companies are starting to realise they can actually improve customer experiences by slowing things down, said Mikkel Krenchel, a partner at the firm.
“This idea of looking for sustainable behaviour, as opposed to just maximal behaviour is probably the mind-set that firms will try to adopt,” he said.
Slowing down processing times can help build trust, said Chianoo Adrian, a managing director at Teachers Insurance and Annuity Association of America. When the money manager launched its online retirement checkup tool last year, customers were initially unsettled by how fast the website estimated their projected lifetime incomes.
“We got some feedback during our testing that individuals would say ‘Well, how did you know that already? Are you sure you took in all my responses?’ ” she said. The company found that the delay increased credibility with customers, she added.
For others, a delay might not be enough to break undesirable habits.
More people have been seeking treatment for day-trading addictions in recent years, said Lin Sternlicht, co-founder of Family Addiction Specialist, who has seen an increase in cases since the start of the pandemic.
“By the time individuals seek out professional help they are usually experiencing a crisis, and there is often pressure to seek help from a loved one,” she said.
She recommends people who believe they might have a day-trading problem unsubscribe from notifications and emails from related companies and change the color scheme on the trading apps to grayscale, which has been found to make devices less addictive. In extreme cases, people might want to consider deleting apps entirely.
For Perjan Duro, an app developer in Berlin, a 20-second delay wasn’t enough. A few months after he installed One Sec, he went a step further and deleted the app for his retirement account.
“If you don’t have it on your phone, [that] helps you avoid that bad decision,” he said.
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