Financial markets drag crypto market down

Financial markets drag crypto market down, bitcoin goes sideways

Strong gains in US Treasuries are putting pressure on the crypto market in a roundabout way.

The crypto market is experiencing further selling pressure after the US 10-year government bond yield recently climbed to a multi-month high. The latter is to the detriment of risky investment products like cryptocurrencies.

As data from Cointelegraph Markets and TradingView shows, Bitcoin (BTC) slipped to interim lows of US$44,710 on 25 February before fresh buying interest lifted the market-leading cryptocurrency back above US$46,500, where it is Immediate Bitcoin currently settling. However, analysts believe that a jump above the 50,000 US dollar mark is needed for the upward trend to continue, otherwise further losses are imminent.

Although big-name firms such as MicroStrategy, Tesla and MassMutual have invested heavily in recent months, most large companies are not yet daring to invest in bitcoin. Damien Vanderwilt, co-president of Galaxy Digital, suspects there are two main reasons for this.

Nevertheless, the increased interest of institutional investors is one of the drivers of the crypto industry’s rise in 2021, but their influence may be overstated, as retail and stablecoin investors have the most buying power.

Government bonds put pressure on crypto market

The yield on 10-year US Treasury bonds climbed to a level of 1.52% on 25 February, marking the highest level in a year.

As Chad Steinglass, CrossTower’s head of trading, explains, this has created selling pressure that has „temporarily pushed the Grayscale Bitcoin mutual fund (GBTC) price differential into negative territory by 6%, ultimately closing it at negative 2%“. Clear evidence that government bonds have indirectly impacted the crypto market, in that their rise has triggered a cascade.

The massive increase in yields initially put pressure on the stock market, as traders suddenly needed liquidity and therefore liquidated their positions in order to get money back quickly.

Steinglass states:

„I interpret the downturn in the GBTC price differential as a sign that retail investors are selling to get liquidity. Another reason could be that other big investment funds like ARKW are seeing capital outflows, so they in turn are selling their shares in GBTC.“

Only Cardano wins

However, US 10-year government bond yields fell again by 0.0582 basis points on 26 February, down 3.82% from the previous day. This allowed the stock market to recover slightly, with the major stock indices sending mixed signals of late.

At press time, the NASDAQ is up 0.56%, recovering some of the previous day’s 3.5% loss. The S&P 500 and the Dow Jones, on the other hand, have had to come to terms with further losses of 0.48% and 1.51% respectively.

Analogously, most of the crypto market also lost on Friday. The only notable exception is the blockchain project Cardano (ADA), which managed to become the third largest cryptocurrency ever by jumping to a new record high of 1.29 US dollars. This is likely triggered by the hype surrounding a major upgrade due to take place on 1 March.

The Basic Attention Token (BAT) also resisted selling pressure with a gain of 6.43%, likely due to the announcement on 23 February of the imminent launch of its associated decentralised crypto exchange, Brave Decentralized Exchange (DEX).

Ether (ETH), meanwhile, is down a whopping 7.19%, slipping below US$1,500, while Binance Coin (BNB) is down as much as 8.36%, dropping to US$224.14.

Given these developments, the total market capitalisation of all cryptocurrencies amounts to 1.533 trillion US dollars. US dollars, with Bitcoin’s market dominance amounting to 61.3 %.

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