Crypto proceeds where 2021 ends Crypto proceeds where 2021 ends Crypto proceeds where 2021 ends

Crypto proceeds where 2021 ends

Cryptocurrencies 6 minutes to read
Mads Eberhardt

Cryptocurrency Analyst

Summary:  The crypto market has been off to a rough start this year, effectively starting the year where it ended in 2021. We are looking at multiple sources to answer the question of why.


On 10 November, the crypto market hit an all-time high in terms of the combined market capitalization of close to $3trn, according to TradingView. Fast forward, the remainder of 2021 was surrounded by fatigue in the crypto market, leading to high volatility alongside similar declines in particular technology and bubble stocks.

Close to 7 days into the new year, the crypto market has so far shown a similar path to where it ended 2021. From its all-time high in November of 69,000 (BTCUSD), Bitcoin declined to the price on 46,200 at New Year’s Eve before further declining to its current level of 42,200. Respecting price actions, Ethereum has followed in the footsteps of Bitcoin. At the same time as Bitcoin, Ethereum hit an all-time high of around 4,850 (ETHUSD) in November. The delight was somewhat short as Ethereum celebrated New Year at 3,750 before declining to its current level of 3,230.

The question remains why the arguably positive market sentiment turned negative after November while it has continued into the new year. To find the answer, we must turn our attention to multiple sources.

Realizing profit

First of all, 2021 was a great year for the crypto market. With gains magnified many times for about every involved in the space, profits must be realized at some point. Substantial profit realization in a highly leveraged market can quickly turn it around as traders are getting their long positions liquidated, thus making the downside worse. Looking at funding rates for crypto perpetual futures, they have arguably stabilized since November, meaning there is now a more reasonable distribution of longs versus shorts, whereas longs previously dominated the futures.

Correlated to speculative stocks

Last year was also good in terms of equities. In December, though, the equity market experienced a steep selling pressure with particularly technology and bubble stocks tumbling. These stocks have historically been partially correlated to crypto, and by all means, it shows an altered risk appetite without any doubt impacting the highly speculative crypto market. We know that individuals trading cryptocurrencies are often drawn into meme stocks or other highly speculative stocks like GameStop as well. This effectively results in similar price movements, so when one goes down, the other likely follows.

The rate hike is likely coming

On top of this, the market has started to expect a possible rate hike. This expectation was further boosted yesterday after the United States Federal Reserve released the minutes of its December meeting, which shows that the FED wants to accelerate the rate hike. This has caused uncertainties for crypto traders on the matter by what means the increased interest rate will impact the market, comparable to its impact on technology stocks. Our Head of Equity Strategy, Peter Garnry, wrote an article yesterday covering the topic of interest rate and technology stocks. The same will likely be the case with the crypto market.

Source: Saxo Group
Source: Saxo Group

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article
Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.