Pre-market stocks: Bitcoin’s plunge is another sign of market angst
“We are seeing this continued fear of the Omicron variant,” said Marcus Sotiriou, salesperson at digital asset broker GlobalBlock.
Supporters of bitcoin have often touted the possibility that it can serve as a safe haven that trades independently of stocks, bonds, and commodities, giving it a potential role for investors looking to balance their risk.
Still, the decline in bitcoin, which analysts have linked to a broader pullback in sentiment, is a sign that the larger cryptocurrency remains closely correlated with other parts of the market, especially as more and more institutions increase their exposure.
When markets fall, investment managers first offload their riskiest assets. This makes bitcoin vulnerable, Jeroen Blokland, founder of research firm True Insights, told me.
“Bitcoin did what you expect [to do] as soon as equity sentiment drops, ”he said.
According to Sotiriou, the sell was largely due to institutions taking profits on bitcoin before the end of the year due to a spike in uncertainty.
“This market crash definitely shows us that bitcoin is not completely decoupled from global markets,” he told me. “He hasn’t reached that stage yet where he’s big enough to hold out.”
But questions about the Omicron variant have scared investors and prompted many big players to try to lock in gains for 2021. The S&P 500 has fallen more than 3% in the past two weeks, but is still close to 21%. higher so far this year.
Blokland has said he doesn’t think this signals the end of the Covid-era bull market. One of the reasons for the bitcoin collapse, he added, was the reduction in trading on weekend days.
“I don’t think the whole sentimental rally is over,” he said.
But the sale serves as a reminder to professional investors that bitcoin is not immune to market fears, Blokland continued. In fact, it may be more sensitive because the asset class is three to four times more volatile than stocks.
“The higher the volatility, the bigger the drawdowns,” he said.
Evergrande stock plunges to new all-time low
Before Bell readers wonder: Are investors still worried about Evergrande, the heavily indebted Chinese real estate developer whose potential default was scrutinized a few months ago?
The answer is yes.
The company’s shares fell to a new high on Monday as the company once again indicated it was in deep trouble, reports my CNN Business colleague Laura He.
It just fell: The company, which has total liabilities of around $ 300 billion, warned Friday night that it may not have enough funds to meet its financial obligations. It faces an immediate test of its ability to repay its creditors Monday with the expiration of a 30-day grace period on interest payments on its dollar-denominated bonds.
In a series of seemingly coordinated statements, three Chinese regulators – the People’s Bank of China, the banking and insurance regulator, and the securities regulator – have said that any risk of Evergrande overflowing into the real estate market, homeowners and the wider financial system can be controlled. .
The verbal intervention appears to be aimed at curbing wider contagion – a long-standing concern given the oversized role of China’s real estate industry in its overall economy.
Still, the collapse in Evergrande stocks and other real estate stocks weighed on Hong Kong’s benchmark Hang Seng on Monday. It fell 1.8%, also penalized by large losses in Chinese tech stocks, which collapsed in New York on Friday following Didi’s brutal decision to leave Wall Street just five months after its IPO.
Wall Street bank makes Omicron call
Goldman Sachs had described various scenarios of how this might play out, including a “false alarm” scenario where Omicron does not have a significant impact on global infections, and a “positive” case in which the variant is more infectious but causes much less severe disease, actually stimulating the economy.
Yet he now considers the “downward” option, in which Omicron spreads faster than the Delta variant but “causes equally serious disease,” as very likely. Over the weekend, Goldman economist Joseph Briggs said this was the new baseline scenario and lowered the bank’s expectations for US economic growth.
The latest: Goldman Sachs now predicts the US economy will grow 3.8% next year, down from a previous forecast of 4.2%.
He sees the Omicron variant having three main effects. This could slow the reopening of the service sector “if state governments implement policies to control the spread of the virus or if consumers become less willing to engage in normal economic activity.” This could exacerbate supply chain problems. And that could slow down the return to the job market.
But Briggs doesn’t believe the variant’s arrival will cause the Federal Reserve to change course and still expects the central bank to announce a faster withdrawal from its bond buying program at its meeting. of the next week.