Cryptos in Correction Mode – Risk of Spill-Over Effect?
5 July 2024
Most crypto traders do suffer during latest days and weeks. Since its all-time high, reaching almost USD 73’700 in March this year, the Bitcoin moved into a technical downtrend channel. Interesting fact, Bitcoin just reached its all-time high some weeks after the official launch of the crypto ETF in the US which pushe the price one more time up. Some investors who took this as a chance for their first crypto investments may suffer today from a potential loss.
Bitcoin Price in USD (YTD)
as of 5 July 2024
In the short-term, crypto prices are mainly technical driven. It was interesting to see, that the support level of USD 56’500 did not hold and broke yesterday and therefore leads the way to the next support level at USD 52’000.
I follow the most important ‘influencers’ in the crypto space. Interesting to see and read their super bullish stance, showing their own technical charts, all adapted from time to time to the new and lower price levels, with their indications that prices should move higher from these lower levels.
I do follow the crypto market mainly on personal interests, not for investment reasons in cryptos. Or let’s say, by following the crypto market, to find out, if there is a pattern of certain correlation with other asset classes like equities and bonds. So far, this cannot be clearly seen.
However, the longer the correction in the crypto space last, the bigger the likelihood of a certain spill-over effect on other asset classes in my view.
We are not far from levels, where the correction could cause so called margin calls. Especially, should the next support level around USD 52’000 do not work out and prices break below this level, leading again to selling pressure.
This would mean that leveraged investors are forced to liquidate their exposure, forced to reduce their negative account balances in making cash immediately. Maybe not only forced in selling cryptos, equities could also be affected, in case they have certain exposure there. I guess most of these crypto investors taking higher risk exposure have also equity positions allocated to the crowded tech and AI (artificial intelligence) related sector. This could lead to a forced and sharp sell-off, starting in the crowded space.
My portfolio does not have any crypto allocation. However, it will be interesting to follow and see if the bullish stance returns or the bearish trend keeps the lead. And if there could be an effect on the crowded investments on the equity side.
Disclosure of shares in my portfolio specifically mentioned in this article (as of 5 July 2024):
No position in cryptos