Crypto winter is (officially) here, crypto stocks beware
In June, crypto trading fell more than 40% at the largest exchanges (i.e. Coinbase, Binance, Kraken) with Bitcoin down 50% from its April peak. 91 days have passed since Bitcoin’s peak, which officially puts us in a crypto bear market.
What’s the big deal? Unlike past crypto bear markets, where the impact of lower prices stayed within the crypto ecosystem, a larger part of the financial system is tied to crypto today — which includes the stock market.
The factors bringing down crypto: China banning crypto mining and financial institutions from offering crypto services, the FBI showing Bitcoin can be traced, and of course, Tesla backtracking on accepting Bitcoin.
But cryptos are notoriously volatile — a 20% crash doesn’t mean a bear market. So how can we tell if prices will stay down?
Give it to us, doc: Coindesk created a metric to tell if we’re in a crypto bear market — a 20% drop in Bitcoin’s price, followed by 90 days where it doesn’t return to its previous high.
- Today marks the 91st day since Bitcoin crashed in April and hasn’t returned — and the start of a bear market by Coindesk’s definition.
- The last 3 bear markets lasted 633, 361 and 260 days — with each getting shorter.
Back to stocks: In the past year, we’ve seen several crypto-related companies go public (many questionable) with some pivoting into a crypto company from an unrelated industry.
Falling crypto prices and trading activity will hit many of these companies hard:
- Crypto exchanges — which rely on trading activity to generate trading revenue.
- Bitcoin miners — whose businesses are less profitable as crypto prices drop.
If you’re holding onto any crypto-related investments, it might be time to consider better investments to rotate into.