Bitcoin traded as high as $22,493.61 on Monday, surpassing the $22,000 number for the first time in several weeks. Other cryptocurrencies also bounced back with ether going up more than 9% compared to its value 24 hours ago, while Polygon’s MATIC token recorded a 16% surge.
As a result, shares of Coinbase (NASDAQ: COIN), MicroStrategy (NASDAQ: MSTR), and Block (NYSE: SQ) all moved higher as well.
Risk Sentiment Improving
European stocks closed higher Monday, with Asia and the United States making
moderate gains as the U.S. dollar retreated.
Cryptocurrency bulls hope that selling is overdone and the crisis, which saw billions of dollars wiped off the market, is behind us. The market came under a huge amount of pressure after many companies, especially those in the lending space, had to sell off whatever assets they had to try to meet their liabilities.
For cryptocurrencies, the last quarter is the worst in more than ten years, with both Bitcoin and Ether losing over 50% of their value.
“Given the severely negative performance in Q2, it is unsurprising that a ‘relief’ bounce has occurred. We believe the market will continue range-bound over the coming months,” research analyst at CryptoCompare, David Moreno, wrote in a note.
Moreno, however, believes that the market will be able to recuperate from this moment on.
“The worst of market contagion has likely run its course, with the majority of forced selling behind us,” he noted.
Bitcoin went from trading at $45,524 at the beginning of the quarter to trading just below $19,000 on the last day of Q2. This marks the worst quarterly performance for bitcoin after losing 68.2% of its value in the third quarter of 2011.
Based on the Coin Metrics data, other altcoins are in the same slump, with ether being down 69.3% in the second quarter, making it the worst quarter since it was created in 2015.
Tough Macro Environment Weighs on Fragile Crypto Businesses
Asset managers all over the world reacted to global inflation by offloading their risk assets, including digital coins, which led to extreme drops in cryptocurrency prices. The Q2 crises also exposed several high-profile issues within the cryptocurrency market, especially with highly leveraged companies and those in the lending space.
Three Arrows Capital and several other hedge funds were forced to file for bankruptcy after taking out loans to cover their losses and not being able to pay them back.
Celsius, a prominent crypto lender, offered customers yields of over 18% for depositing their digital coins and took on high-risk trading activities as a means to get back on track but were also constrained to file for bankruptcy. Celsius previously paused withdrawals for its customers due to “extreme market conditions.”
Last week, cryptocurrency exchange CoinFlex paused withdrawals for its customers as well, citing the exact same reason as Celsius. CoinFlex also states that crypto investor Roger Ver owes the company $47 million after his account went into “negative equity”, which Ver later denied.
Stablecoin TerraUSD, which was supposed to be connected to a real-world asset, the US dollar, collapsed back in May because it was governed by a faulty algorithm.
The ongoing bear market has proved that cryptocurrencies are high-risk speculative assets that are highly correlated with the tech-heavy NASDAQ stock market index. As a result, cryptocurrencies are unlikely to move higher as long as stocks trade near multi-year lows.
Conclusion
Crypto-linked stocks moved higher on Monday to reflect a rally in Bitcoin and other cryptocurrencies. However, it is still premature to call an end to this bear market as Bitcoin remains extremely exposed to another big selloff in the stock market in the event of the U.S. entering a recession.
