Bitcoin’s plunge is hitting the little guy who got into crypto during COVID worst of all
Categories: Crypto News US
Bitcoin’s plunge is hitting the little guy who got into crypto during COVID worst of all
It’s a glib way to think of all those who had joined the market as Bitcoin’s price rose to an all-time high at the end of last year — including institutions and small-time at-home investors, many of whom are deeply underwater on their investments now.A measure called MVRV — which divides market value by the average purchase price — shows that short-term holders, on average, purchased Bitcoin at around $47,500. Another gauge, called the spent-output-profit ratio (SOPR), indicates those kind of investors are selling at a loss right now, according to an analysis by Genesis Global that uses Glassnode data.
And it’s not just those who have held the coin for a few months. More than half of traders who held crypto at the end of 2021 had gotten in that year, crypto-firm Grayscale Investments said at the time. Bitcoin’s average price in 2021 hovered around $47,300. It was near $32,000 on Monday in New York trading.Crypto fans have long argued that digital assets would hold up well during turbulent times. Many had said Bitcoin would prove to be a good inflation hedge thanks to its limited supply. It was also supposed to hold up better amid economic and geopolitical crises because it’s not tied to any government and has no centralized authority.
Instead, digital-asset investors are suffering through an environment that’s put a lot of risky assets through the wringer this year. The Federal Reserve and other central banks are raising interest rates to combat inflation just as the economic backdrop is softening. In this environment, Bitcoin, the largest digital asset by market value, has been cut in half since its November record. It’s seen five straight weeks of declines and just one positive day out of the last 11 sessions, including Monday’s.
“Cryptocurrencies are risk assets,” said David Spika, president and chief investment officer of GuideStone Capital Management. “‘This should be a good inflation hedge.’ Wrong. It is a speculative asset that is not going to perform well in an environment like this.”In addition, the average purchase price is just that — an average — meaning that Bitcoin reaching that level again doesn’t necessitate all those investors break even once more, said Noelle Acheson, head of market insights at Genesis. “It’s likely that more will be, since short-term holders are more prone to panic-selling, and so the average purchase price is likely to drop fast,” she said.
“Bitcoin is under tremendous sell pressure,” said Steven McClurg, CIO at Valkyrie Investments. “Barring an extraordinary event, it wouldn’t surprise me for us touch $25,000 before we start to see some form of stability. That said, we are more likely to see sideways trading through to the fourth quarter than we are to see a rally carry us through the summer.”