Week of cryptocurrency turbulence felt in traditional financial markets, analysts suggest

Huge dips in value of bitcoin and other currencies ‘catalyst’ for changes in fiat markets, Rabobank analysts say

A hugely turbulent week for the cryptocurrency market appears to have spilled over into traditional asset classes, according to analysts.

The largely blockchain-based technologies suffered two nosedives this week, both in response to talk of a crackdown by China.

The first, triggered by Chinese regulators’ decision to ban the country’s financial institutions and payment companies from providing services related to cryptocurrency transactions, saw the price of bitcoin fall from a high of more than $45,000 on Tuesday to a low of just over $30,000 the following day.

The second tumble came on Friday, after China’s vice-premier Liu He reportedly reiterated that the country plans to crackdown on both bitcoin mining and trading.

According to tracking website CoinMarketCap on Saturday morning, the market had dropped 12.56 per cent over the last day and some 21 per cent had been wiped off the value of bitcoin over the course of a week.

While the volatility of the crypto market rarely makes notable waves in traditional markets, some analysts believe this week’s events appear to have had a rare level of impact – providing a glimpse into how global stock markets could be affected in the event of another historic crypto crash.

The Financial Times reported that, in the wake of the bitcoin drop on Wednesday, some government bonds gained in price and the Japanese yen – widely seen as a “safe haven” currency, in demand during unstable periods – also rose in value.

Futures on the benchmark S&P 500 stock index fell, with oil also pulling back, the paper reported. The tech-focused Nasdaq index also ended 0.5 per cent in the red on Friday, despite sitting up 0.3 per cent for the week.

And the FT quoted Barclays credit analyst Soren Willemann as saying that the crypto market’s turbulence had impacted European corporate bonds due to its ties with tech companies.

“Direct implications are hard to dream up, but to the extent that the crypto correction correlates with weakness in shares of modern tech companies (not least Tesla’s bitcoin holdings), it matters to European credit, as it is hard for our markets to ignore [S&P 500] weakness,” he said.

“That said, we would be buyers on any crypto-induced dip.”

Meanwhile, rates analysts at Rabobank, a Dutch multinational, noted that while it “seems hard to conceive of how there can be a direct link between bitcoin’s gyrations and movements on the part of the global financial market ... the catalyst for these moves appears to have been a sudden rout in bitcoin.”

“So here we are,” Richard McGuire and Lyn Graham-Taylor said in a newsletter on Thursday. “Even as august an organ as the Rabo Rates Daily has finally been forced to put cryptocurrencies front and centre.”

Experts and market analysts appear divided over whether this crash is similar in magnitude to the one seen in 2018 and heralds the start of a new “crypto winter”, or simply a price correction on the way to new all-time highs later this year.