In brief

  • Crypto markets saw double digit drops as market correction appears to be taking hold.
  • Bitcoin lost 20%, Ethereum 22% and EOS 28% as the whole market turned red.
  • Wall Street is bracing for fourth-quarter earnings reports highlighting continue profit losses among big firms.

It was a bad weekend for cryptocurrencies. After Bitcoin hit $40,000 and global market cap soared past the $1 trillion mark the weekend put a dampener on things. 

Total market cap is now hovering below $940 billion, losing 17% in the past 24 hours alone, according to data company Nomics. That's a $60 billion loss. Eesh.

nomics-market-cap-chart
A bad weekend. IMAGE: Nomics 

Accounting for most of those losses was Bitcoin, which has pulled back 20% in the past 24 hours and shows little sign of stopping its drop. But the world’s biggest cryptocurrency wasn’t the worst affected. 

Ethereum saw 22% loses, Ripple 25%, Litecoin 25.2% and EOS 28%. In fact, there was only one winner in the top 20 cryptocurrencies by market cap, Compound’s Dai, which saw its market cap shoot up 45%. Interestingly, trading volume was up 123%. 

Why is that interesting? Because Dai is widely seen as a stable hedge or counterweight against the volatility of more popular crypto-assets such as Ethereum or Bitcoin. The stable value of DAI means it is good for investors or traders who believe the market is about to go down.  

A rush to Dai is like a rush to gold for investors in the fiat world: people are waiting out rough market conditions. Why the sudden rush? There appears to have been several large movements of Bitcoin moving over the weekend, according to Whale Watch.

These signals are then interpreted as a sign a peak may have been reached, causing a cascading effect among smaller traders. However, looking at technical indicators opinion is split whether Bitcoin has overheated - stochastic indicators say it is - or has room left in its current bull run - Williams %R, Bollinger Bands and Keltner Channels all say Bitcoin looks peachy. 

Perhaps it might have something to do with things outside the crypto community. In the UK, HSBC has blocked crypto traders from depositing their money into accounts registered at the bank, according to the Sunday Times. It’s a reminder that while the narrative of institutional investors coming into the space has given Bitcoin an air of acceptance, the cryptocurrency still has a long way to go. 

Traders pull back as overheating spooks investors

Over on Wall Street, after the record highs on the S&P 500 on Friday, the mood has turned cautious. Futures markets were all down at the time of writing, with the S&P, Dow, Nasdaq and Russell 2000 Futures all in the red. That's largely down to a change in the mood about 2021 and an increasingly popular view that some stocks have become overheated.

“After being bullish for several months, we are definitely becoming more cautious on the stock market up at these levels,” Matt Maley, the chief market strategist at Miller Tabak + Co., wrote in a note. He added the “dollar is so extremely oversold, over-hated, and over-shorted that it all but has to rally for a while at some point soon.”

It's also earnings season again, with big banks like JPMorgan, Citigroup and Wells Fargo all expected to release their numbers. The expectation is that overall, corporate profits will continue to fall in the fourth quarter.

Analysts expect to see aggregate S&P 500 earnings per share decline 8.8% year-over-year in the fourth quarter, giving this last quarter the gloomy accolade of the third-largest year-on-year drop in earnings for the index since 2009, according to FactSet. Happy Monday everyone!

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