Crypto investors have cashed out over $135 billion from the asset class so far in 2022, according to Coinmarketcap market cap data, and bitcoin (BTC-USD) is down around 7% year-to-date and hovering around $43,000 as of Thursday at 10 AM ET.
"There are no signs of a decisive reversal in sight," Mikkel Morch, executive director at digital assets hedge fund Ark36, told Yahoo Finance when asked about the largest cryptocurrency's recent price action relative to its drawdown over the past two months.
Bitcoin and other cryptocurrencies began tumbling after the publication of notes from the Federal Reserve's December meeting. Following the broader stock market down, especially technology growth stocks captured on the Nasdaq-100 (NDX).
Morch added that similarities between the current price movement and those witnessed in mid-May and August suggest reasons for "cautious optimism in the medium term."
"In any case, only a clear break above $50K would signal a major reversal in the trend and investors should keep in mind the inherently volatile nature of the digital asset market," the fund director said.
Bitcoin is now trading below its 200-day moving average for the first time since September, a signal of the market's uncertainty.
Yuya Hasegawa, an analyst with Tokyo-based crypto exchange Bitbank, told Yahoo Finance that the downward pressure on the Bitcoin price should be expected to continue until the market fully prices in the tighter-than-expected future monetary policy.
Hasegawa noted that a further drawdown to $40,000 in the near term remains a possibility.
"A strong jobs report on Friday could justify the Fed’s hawkish stance and could trigger another sell off. Next week’s US inflation data (CPI &PPI) could help the price to rebound," he told Yahoo Finance.
So-called "memecoins" also fell, with the price of Shiba Inu (SHIB-USD) coin dropping more than 8%.
Cryptocurrencies powering smart contract protocols, which arguably trade like technology growth stocks more than BTC, took an even greater beating. Ether (ETH-USD) trades down more than 10% at $3,400. Performing marginally worse, its smaller contenders, Solana (SOL-USD) and LUNA (LUNA1-USD), each dropped similar amounts. Polkadot (DOT) has performed worse on the day while Solana is still shaking off a drop a similar drop of 14% from a week ago.
10-year treasury yields, leverage, and other contributors
Since the pandemic began, Bitcoin and the 10-year U.S. bond have moved almost in lockstep, a pattern that runs contrary to the idea that BTC is a risk-on asset.
As of Monday, the two assets diverged with the yields on the 10-year rising while BTC dropped.
Fundstrat's Sean Farrell asserted that the pattern emerged because 10-year Treasury yields, while signaling the risk-on market is running hot, wasn't taken as a warning indicator for the Federal Reserve's policy decision to raise interest rates since the U.S. economy first experienced COVID-19.
"Now that we have more certainty surrounding the timing and degree of a hawkish shift in policy, we see Bitcoin behave closer to a small-cap tech stock," Farrell stated in an email.
Farrell went on to say that once again, the most obvious dynamic crypto investors can expect in the near term is increased volatility. Traders who like cryptocurrency specifically for the volatility of the asset class can lever their positions at relatively cheap rates overnight. For instance, on many exchanges they can take on 25% leverage in BTC or ETH futures without contributing more than 1% of their own money. For the market as a whole, this could mean a more exaggerated drawdown sparked by liquidations if crypto prices do not improve according to Farrell.
Meanwhile, longer term BTC investors have largely flipped from net-sellers to net-buyers over the past week, signaling that bulls still remain optimistic about BTC's performance.
As for Bitcoin miners, the specialized computers that secure the cryptocurrency's payment network, the Bitcoin hash rate dropped yesterday following an internet blackout in Kazakhstan where roughly 18% of the world's BTC miners are estimated to operate.
Hash rate measures how many miners contribute computing power towards Bitcoin. While many indicators haven't yet registered the hash rate's drop, it's estimated to have fallen at least 12%. Bitcoin's price typically leads the hash rate, not the other way around, but hash rate does indicate its level of security as a decentralized payments network.
Given that Bitcoin withstood a much larger hash rate drop of more than 50% over the summer following the Chinese government's ban on cryptocurrency mining, many observers remain optimistic about the network's security despite political change and a worsening energy crisis in a country estimated to contribute 18.10% of Bitcoin's hash rate.
David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.