Bitcoin in a dumpster fire: Massive liquidations, Nasdaq correlation and Fed considerations

Tue 10 May 22, 11:58am (AEST)
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Key Points

  • Bitcoin hits a 10-month low of US$29,730 as risk asset sell off
  • Bitcoin's correlation with the Nasdaq has hit an all-time high
  • What happens to crypto when the Fed's money fountain dries up?

Cryptocurrency is quickly turning into one of the biggest dumpster fires of 2022 as leveraged investors are liquidated and nobody seems interested in JPEG apes anymore. 

Bitcoin is down around -22% in May, hitting a 10-month low of US$29,730 this morning.

2022-05-10 11 37 12-BTCUSD 2022-05-10 11-36-51.png ‎- Photos
Bitcoin 12-month price chart (Source: TradingView)

Recent challenges surrounding inflation, the Fed reigning in its US$9tn balance sheet, aggressive interest rate hikes and global economic growth concerns is taking a toll on risk-assets, notably tech and cryptocurrency. 

The cryptocurrency selloff has intensified so much so that approximately 40% of Bitcoin investors are now underwater, according to data from Glassnode.

The narrative is even more dangerous for less-known cryptocurrencies, subject to steep selloffs as founders and major holders exit and/or overly leveraged investors are forced to liquidate their holdings. 

Luna is a prime example, staging a -55.5% selloff overnight after 225.5m units were liquidated around US$35 a piece. 

2022-05-10 11 38 07-LUNAUSD 2022-05-10 11-38-02.png ‎- Photos
Luna price chart (Source: TradingView)

Nasdaq correlation

Bitcoin has become grounded to traditional assets. Its 40-day correlation with the Nasdaq is now at a record 84%.

2022-05-10 11 42 52-BTCUSD 2022-05-10 11-40-16.png ‎- Photos
Bitcoin vs. Nasdaq (orange) (Source: TradingView)

Richard Craib, founder of quant hedge fund Numerai, sold his Ethereum position for around US$2,500 after buying it for just 26 cents a few years ago.

"This bet (cryptocurrencies) used to be this very weird, uncorrelated thing. What's happened over time, is that the quality of the return stream from these crypto assets has become extremely correlated with regular things - crypto is very correlated with venture capital, the Nasdaq. It didn't used to be this way," said Craib.

"It's all the same bet."

Fed considerations

Crypto valuations has ballooned to become an asset class of its own.

But where did all this money come from? Probably the Fed.

So what happens when the Fed begins shrinking its outsized balance sheet?

Go figure.

2022-05-02 13 14 59-Window (1)
Source: TradingView


Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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