On April 12, Beijing time, the cryptocurrency market ushered in a pullback.
Bitcoin fell 15 per cent in 24 hours and was last quoted at $39,682, falling below $40,000 for the first time since March 15, market data showed. Ethereum, meanwhile, fell 14%, last quoted at $2,969, falling below the $3,000 mark for the first time since March 23.
As Bitcoin pulled back in tandem with Ethereum, the cryptocurrency market as a whole also suffered, falling 8.5 percent in 24 hours to $1.84 trillion in market capitalization, according to CoinMarketCap.
This cryptocurrency correction and the US stock market again has a certain correlation. The S&P 500 closed down 1.7%. The Dow Jones Industrial Average closed down 1.2% and the tech-heavy Nasdaq fell 2.2%.
It's part of a trend that has seen cryptocurrencies move more closely with U.S. stocks in recent years, with the correlation between bitcoin and the S&P 500, one of the three major U.S. stock indexes, hitting 0.49 at the end of February, close to its previous extreme of 0.54, according to CoinMetrics. The higher the number, the stronger the correlation between bitcoin and the S&P 500. This is in line with Bloomberg data, which showed the cryptocurrency's correlation with Nasdaq at 0.73 in early February 2022.
The macro background of this cryptocurrency correction is complex, and the following three factors are disturbing market sentiment:
The first is that the conflict between Ukraine and Russia is not over, and it is taking on a lasting shape, and the overall impact of this on the world political and economic landscape is continuing to be transmitted to financial markets.
On the other hand, as the impact of COVID-19 continues to this day, its supply chain pressure on the global economy continues to be maintained, which also affects global investors' expectations for the speed of economic recovery.
On top of that, the fed, the bellwether of global finance, decided to aggressively raise interest rates and cut off the supply of money to the economy, adding to the uncertainty.
Some in the cryptocurrency world have already expressed pessimism about the market's prospects.
Arthur Hayes, the former CEO of cryptocurrency exchange BitMEX, wrote a blog post on April 11 expressing confidence in the cryptocurrency forward, but a "crash" is likely in the near term.
Not only the stock market, but cryptocurrency valuations are likely to shrink as the Federal Reserve seeks to fight inflation and less money is being pumped into the economy, according to Arthur Hayes, who analyzed the global situation. "We're standing on the edge of a cliff," he said, predicting further declines for both bitcoin and Ether.
"Bitcoin and Ethereum will both bottom out before the Fed moves and turns its policy from tight to loose," he said in a blog post.