Why are cryptocurrencies and NFTs in free fall?

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After falling tech shares on Wall Street, crypto assets have suffered a dramatic collapse in recent days. Bitcoin even fell below $30,000 for a short time…

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Panic wind in the crypto money and NFT market! After tech stocks slumped on Wall Street since the start of the year, crypto assets have suffered a dramatic crash in recent days. After hovering around $40,000 for several months, bitcoin briefly dropped below $30,000 on May 10 for the first time since July 2021. The top of $69,000 last November looks good now. far !

On its decline, bitcoin is pulling other cryptocurrencies down and ether is down 17% in seven days. According to data from the Coingecko site, which compiles over 13,000 cryptocurrencies, the total market is valued at just over $1,500 billion, compared to $3,000 billion at its peak. Among the top 20 cryptocurrencies, nearly all have been bearish for three months, as have bitcoin and ether, which have fallen by nearly 25% over the period.

On the NFT side, the situation is no better, which is in turmoil. The Bored Ape Yacht Club, the most popular collection in the industry with 10,000 unique designs, is proof of that. According to the OpenSea platform, it lost 35% in one week. In just seven days, the average price of a Bored Ape went from $430,000 to almost $260,000. The situation isn’t all rosy for CryptoPunks, these little pixelated characters from the retro games that popularized avatars in NFTs. Second, it has dropped almost 25% in a week and even more than 65% in the last 24 hours.

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Cryptocurrencies now follow the stock market

While it is hardly surprising to see NFTs follow cryptocurrencies in their declines as long as these digital assets are backed by cryptocurrencies, it is a bit more unusual to see Bitcoin and other virtual currencies sink in the wake of Nasdaq tech shares, although the industry has gotten used to it. volatility cycles.

Until 2020, the price of cryptocurrencies was unrelated to the upheavals on Wall Street. But the adoption of bitcoin and more broadly crypto assets by financial institutions around the world has changed that. And this digital asset, which is on the margins of the global financial system, thus began to follow the dynamics of the stock market holdings of the New York Stock Exchange. While the tech stocks it hosts have been falling steadily since the start of the year, cryptocurrencies are doing the same.

At the start of the war in Ukraine, bitcoin’s illusion of being a safe haven lasted for several days before finally following the evolution of stock markets. It also comes on top of other events with international repercussions, such as the armed conflict in Eastern Europe, the resurgence of the Covid-19 pandemic in China, the increasingly harsh monetary policy in the United States, or runaway global inflation. Many factors that contribute to an alarming climate in traditional markets and that are increasingly worrying them. And that concern extends to other assets, such as cryptocurrencies, that have not been able to withstand the current collapse.

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Is El Salvador on the brink of bankruptcy?

Beyond reducing the capital gains of certain investors in crypto-assets to zero or nearly zero, this could be even more dramatic for countries with strong ambitions in virtual currencies. This is the case of El Salvador, which accepted bitcoin as legal tender in September 2021, despite pressure from the International Monetary Fund (IMF), which recommended that the country abandon such a project.

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Fears rise as a bond matures in January 2023, but as the country’s currency reserves, holding more than 2,000 bitcoins, collapse, bondholders are losing confidence and now see the specter of default rise. And for good reason: This Central American country still hasn’t attracted any investors for its bitcoin-backed government bond.

This was specifically to make it possible to raise a billion dollars to finance the soon-to-be-expiring government bonds and to build a “Bitcoin City”, a city powered by the energy of a volcano for mining cryptocurrencies. However, El Salvadoran President Nayib Bukele remains on track and even announced that he bought 500 bitcoins at an average price of $30,744, taking advantage of the decline in his country’s cryptocurrency. This still represents a total of $15.3 million.

More risk aversion

While this critical situation may last for a few more months, tech shares, which rose sharply in the stock market during the health crisis, are now the victim of a violent market correction. The peloton is emblematic of this stock market crash, with $4.3 billion in capital on Wall Street today compared to nearly $56 billion at its peak in January 2021.

The crypto-sphere must therefore continue to suffer for a while before continuing its course towards new highs. However, the current context hasn’t dampened Instagram’s newcomer to NFTs. However, in a time of strong geopolitical and economic instability, investor risk aversion is particularly strong. As a result, hardly anyone outside of El Salvador is buying cryptocurrencies to the downside.

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