Ahead of the opening bell for in the U.S., cryptocurrency-related stocks have experienced a sharp decline in pre-market trading, mirroring the severe downturn in the broader crypto market.
The sell-off, triggered by a confluence of factors including regulatory concerns, macroeconomic uncertainties, and geopolitical tensions, has sent shockwaves through the digital asset ecosystem.
Leading the pack in pre-market losses, MicroStrategy (MSTR) saw its stock price plummet by 29%, while Coinbase Global Inc. (COIN), one of the largest cryptocurrency exchanges, suffered a 19% drop, according to data from MarketWatch.
Things weren’t much better for publicly traded Bitcoin miners. Marathon Digital (MARA) and Riot Platforms (RIOT) saw declines of 18% and 13.5%, respectively. Two of the smaller publicly traded Bitcoin miners, Iris Energy (IREN) and Hut 8 (HUT), were also feeling the heat. Their share prices have fallen 27% and 19.3%, respectively, in pre-market trading.
The steep decline in crypto stocks is directly linked to what’s happening in crypto markets, which was all set off by a spike in fear of an impending global recession.
The crypto market's downturn is part of a larger global sell-off affecting stock markets worldwide.
Asian markets were particularly hard hit, with Japan's Nikkei 225 index experiencing its worst day since 1987, plummeting over 12.4%.
Other major Asian indices also saw significant losses, including South Korea's KOSPI and Taiwan's Taiex.
The ripple effect extended to European markets, with the FTSE 100 and STOXX Europe 600 both opening lower, reflecting the widespread investor anxiety.
Bitcoin (BTC), the flagship cryptocurrency, is currently trading at $51,450, marking a staggering 15.5% drop in the past 24 hours and an even more alarming 28% decrease over the last week.
Ethereum (ETH), the second-largest cryptocurrency by market capitalization, has fared even worse, plunging 22.4% in the last day and 33.4% over the past week.
Industry experts point to several factors contributing to this market-wide sell-off.
Anastasija Plotnikova, CEO of Fideum told Decrypt that crypto stocks are experiencing a downturn today as a reflection of broader market uncertainties and specific challenges within the cryptocurrency sector.
“This decline can be attributed to several factors, including recent regulatory scrutiny, macroeconomic concerns such as geopolitical instability and diverted attention, and a general risk-off sentiment among investors," she said. "The crypto market, known for its volatility, is particularly sensitive to changes in investor sentiment and regulatory developments.”
She added that the overall stock market conditions, including concerns about inflation, interest rates, and global economic growth, may be contributing to the downward pressure on crypto-related equities.
“Investors are closely monitoring these stocks for signs of stabilization or further decline, as they usually can serve as a barometer for sentiment towards the broader cryptocurrency and blockchain tech sectors,” she said.
The immediate trigger for the crypto market's downturn appears to be aggressive Ethereum selling from major players such as Jump Trading and Paradigm VC.
This move was exacerbated by market makers rushing to cut short gamma as Ethereum volatility spiked dramatically.
Adding to the perfect storm of negative factors, poor U.S. unemployment data released last Friday has dampened macro sentiment.
The VIX, shorthand for the Chicago Board Options Exchange’s CBOE Volatility Index, touched 50–a level only seen during the COVID-19 pandemic and the 2008 financial crisis.
This spike in volatility across various asset classes is likely to cause further unwinds in the crypto market.
Philipp Zentner, CEO of LI.FI told Decrypt that key factors influencing this downturn include anticipated sell-offs in crypto ETFs, driven by fears of a gap down when the US market opens, and the unwinding of the Yen carry trade, which is creating a risk-off sentiment.
Additionally, a 25 basis point interest rate hike by the Bank of Japan has had a pronounced impact on risk assets, including a significant drop in Ethereum prices, he said.
“The connection between the BOJ’s interest rate hike and the Yen carry trade is crucial. The Yen carry trade involves borrowing Yen at low interest rates to invest in higher-yielding assets elsewhere," Zentner said. "As the Yen strengthens due to the rate hike, maintaining these loans becomes more expensive, prompting investors to liquidate their positions to repay Yen-denominated debts. This selling pressure affects various asset classes, including crypto, causing significant drops in prices."
Geopolitical tensions have also played a role in the global risk-off mood.
The recent killing of a Hamas leader by Israel and Iran's subsequent vow to take action have heightened concerns, as the U.S. begins to deploy troops to the Middle East.
Edited by Stacy Elliott.