Weekend Crypto Tumble & Rebound

December 5, 2021

Early Saturday morning crypto prices slid significantly, with much of the digital asset market down 20% or more. While prices are rebounding, we wanted to briefly offer our insights surrounding the latest market volatility.

So what happened? From a macro point of view, there seems to be a higher likelihood that COVID stimulus money from central banks will ease and the Federal Reserve may begin raising interest rates sooner than expected. The Fed has acknowledged inflation concerns and appears to support a more hawkish monetary policy moving forward. Losing access to cheap and easy money is generally not great for equity markets or other “risk” assets. So the equity markets fell on Friday (NASDAQ  down about 2%, S&P500 down about 1%) and crypto was one of the rare markets that trades 24/7, allowing traders to continue to express their risk-off sentiment after the Friday market close. The initial price slide was magnified in crypto, however, since many crypto investors utilize leverage. Crypto markets have a relatively long history of leveraged traders being "washed out” -- Traders using too much leverage get liquidated when prices decline, which triggers additional price declines washing out leveraged traders below them and so on and so forth. Eventually there’s a bottoming out followed by a subsequent dramatic rise in prices as investors buy assets on sale. Right now we’re seeing exactly that - Prices have rebounded quickly and substantially but some of our highest conviction assets are still down 10% from earlier in the week. With none of our fundamental viewpoints having changed, we've embraced this as an opportunity to buy assets at a discount. Adoption rates continue to impress, major institutions (including financial institutions) are increasing their involvement in the space, regulatory frameworks are developing with bipartisan support, the technology continues to unveil new use cases and the industry continues to mature which further supports incoming institutions and global adopters. 

Ultimately while we believe this asset class will see more volatility ahead, we also think our team is uniquely positioned to navigate it safely and see opportunities where others may not. This weekend’s price declines will likely prove to be one of them.

As always, please do not hesitate to reach out should you have further questions or wish to discuss in depth. 

Wishing you a wonderful holiday season ahead,

Your team at Perceptive