Sentiment in Asia was further pressured by Saturday's warning from the People's Bank of China regarding illegal activities related to digital currencies, which pulled down the quotations of crypto companies on the Hong Kong Stock Exchange. The declines are part of a broader flight from risk at the start of the new month.
As Ben Emons, founder and CIO of Fedwatch Advisors, points out to CNBC, the market remains nervous after the recent wave of bitcoin sell-offs. Monday's crash was widely associated with the liquidation of positions worth approximately USD 400 million. He noted the massive leverage on crypto exchanges — up to 200x — and an estimated $787 billion. open leverage in perpetual futures compared to approx. USD 135 billion in ETFs.
In his opinion, if prices do not recover from the lows, the market may see further forced liquidations.
Emons added that the October sell-off in cryptocurrencies also spilled over into stocks, and bitcoin's correlation with indices, including the Nasdaq, strengthened.
Bitcoin turned red
It worries him too the advantage of retail investors who react differently than institutionswith decentralized infrastructure and limited asset class transparency.
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Uncertainty regarding a possible rate cut in the US and doubts surrounding the overheating of AI company valuations deepened the November turbulence and crypto volatility.
Short-term prospects also do not look good – as Zach Pandl from Grayscale points out, open interest on perpetual contracts (less speculative leverage) is declining, and relatively low volumes on centralized and decentralized exchanges suggest subdued activity and risk appetite.
December started poorly for European stock exchanges and, as it turns out, also for Bitcoin and the cryptocurrency sector.
