Cryptocurrency prices saw a slump on Monday as fears regarding the Chinese property development giant Evergrande’s debt troubles escalate. The cryptocurrency market experienced a 10% drop in its market capitalization taking it under $1.94 trillion from previously reaching $2.17 trillion on Saturday.
Bitcoin is the biggest and most well-known cryptocurrency in the world. It dropped to its lowest since August to $42,453.97 but quickly recovered some losses to trade down 7.4% at $43,745. Ether, another rival cryptocurrency related to the Ethereum blockchain network also dropped more than 10% since early August. Cardano also dropped around 10% within the last 24 hours, as reported by CoinGecko.com.
Analysts believe this is a spillover effect pertaining to the rising concerns regarding Evergrande. A widening selloff triggered by fears about the contagion from China Evergrande swept through financial markets globally.
S&P 500 dropped 1.7% overnight as investors weighed the risks coming from the Evergrande debt crisis and this week’s Federal Reserve meeting. These losses are further reflected in the continued stock selloff in Asian markets on Tuesday.
A sales trader at the UK based digital asset broker, GlobalBlock, Jonas Luethy writes “Some have attributed the sudden dip to the currently ongoing Evergrande situation in China which has already caused turmoil in traditional markets. Analysts have suggested a choppy week is ahead, with a potential pullback to as low as $41,000.”
One of the characteristics of Bitcoin that make it a tempting proposition from a portfolio-diversification point of view is that it does not generally trade in tandem with financial markets, however, its correlation on a 30-day basis to futures on the Nasdaq 100 has been consistently positive since February last year further integrating the currency into global financial markets. As this integration continues, Bitcoin may become more responsive to the changes in risk appetite that drive global sentiment.
El Salvador recently decided to adopt Bitcoin as legal tender, fueling a controversy that was met by protests and technical glitches. President Nayib Bukele said that the country had “bought the dip,” in Bitcoin, adding 150 tokens to raise its total holdings to 700 which equates to about $32 million based on current pricing.
Chief Executive Officer at Valkyrie Investments, Leah Wald commented “This is part of a well-established pattern where it sells off as traders cash in their riskier assets to cover margin calls and/or sit on the sidelines until markets calm down and they feel more comfortable going back into riskier positions.”