Poor macroeconomic sentiment and increasing fears of a recession in the West laid the backdrop for cryptocurrencies to lose 4% of their market capitalization in the past 24 hours, with several major tokens taking hits of up to 8%.
Analysts at Goldman Sachs said in a note that the Federal Reserve’s aggressive measures to control inflation could result in a recession. This spooked global investors, leading to a sell-off in stocks and other risk assets.
The crypto market followed suit, with Bitcoin (BTC) and Ethereum (ETH) falling to its lowest level in two weeks. Other major cryptos also took hits, with XRP losing 8%, Bitcoin Cash as well. The note from the investment bank put the odds of an economic contraction at about 35% over the next two years. An economic contraction is defined as two consecutive quarters of negative growth. A phase of the business cycle in which the economy is in decline.
Bitcoin (BTC) dropped to under $38,500 during trading hours in Asia to change hands at its lowest point in over a month. Ethereum (ETH) slumped further to $2,040.
April has always been a seasonally bullish month for the largest cryptocurrencies. Prices for the past 10 years have increased 7-fold in the month of April, data shows.
Bitcoin previously saw the $30,000 mark last July. It then erased losses over the following months to set a lifetime high of nearly $69,000 in November. Profit-taking and falling macroeconomic sentiment have dented grandiose price targets for bitcoin since then, with prices dropping 43%.
Other so-called altcoins that have rallied in recent months have seen steeper losses recently. Dogecoin (DOGE), for instance, tumbled as much as 41% on Wednesday to $0.081. The parody cryptocurrency was among the biggest gainers this year, surging more than 8,000% to an all-time high price of $0.73 on April 16, propelled by social media buzz and high-profile endorsements from the likes of Tesla CEO Elon Musk.
DeFi tokens have also been hammered this week as investors rotated out of risky bets and into bitcoin. The total value locked in Ethereum smart contracts plunged $13 billion in the space of 24 hours on Wednesday, according to data provider DeFi Pulse.
“The market is digesting the news that a lot of stimulus money is on its way and people are worried about inflation,” said Mati Greenspan, founder of Quantum Economics. “The cryptocurrency market is very much influenced by what’s going on in the traditional markets.”