In the wake of heightened economic uncertainties and geopolitical tensions, global markets witnessed a sharp downturn on Monday, with the crypto sell-off becoming a key focal point for investors. The benchmark indices across major economies tumbled, led by a massive sell-off in the cryptocurrency market, as fears of a deeper U.S. economic slowdown and rising tensions in the Middle East spurred investors to seek safer assets.
Bitcoin (BTC-USD) is experiencing its worst week since the downfall of Sam Bankman-Fried’s FTX cryptocurrency exchange in November 2022. Over the week ending Saturday, Bitcoin fell by 14.85%, according to Yahoo Finance data, and has continued to drop by another 7% in the past 24 hours as part of a broader market correction.
The cryptocurrency briefly dipped below $50,000, marking its lowest level since February and resulting in a loss of over $13,000 in value within the past week. Ether (ETH-USD), the second-largest cryptocurrency, is seeing even steeper declines, falling more than 15% in the same period and recording its largest single-day drop since late 2021.
Bitcoin USD (BTC-USD)
- Current Price: $55,424.26
- Change: -$3,498.49 (-5.94%)
- As of 4:26 PM UTC
The recent sell-off follows a period of optimism, with hopes that the digital asset market was poised for a bull run after the severe 2022 collapse, which included the downfall of major players like FTX. Just two weeks ago, Bitcoin approached its all-time high of $74,000 as former President Donald Trump prepared to speak at a Bitcoin conference in Nashville, boosting investor hopes for favorable regulatory changes from Washington, D.C.
The approval of new exchange-traded funds (ETFs) by the Securities and Exchange Commission (SEC) for major money managers to hold ether had also excited investors about the growing mainstream acceptance of cryptocurrencies. However, the influx of these ETFs may have contributed to the recent market instability, potentially leading to increased sell orders that could further destabilize the market.
Data from crypto asset manager CoinShares revealed that digital asset ETFs and other investment products saw their first weekly outflows in a month, totaling $528 million, with Bitcoin facing the brunt of the pressure. This came amid a broader trend of crypto market leverage exaggerating the downturn, with over $1.23 billion in crypto derivatives bets liquidated in the past day, according to CoinGlass.
Despite the current turmoil, Bitcoin remains up 29% year-to-date, and Ether is 6% higher. Analysts suggest that the market reaction is not surprising, with similar patterns observed during the early days of the COVID-19 pandemic. They remain optimistic about Bitcoin’s institutional adoption trends and regulatory developments as short-term catalysts for the crypto market.
Leverage and market corrections have also impacted crypto-related stocks, with Coinbase (COIN) down 6%, MicroStrategy (MSTR) falling 9%, and Bitcoin miner stocks Marathon Digital (MARA) and Riot Platforms (RIOT) declining by 5% and 4%, respectively.
Crypto Market Takes a Hit
The crypto sell-off saw Bitcoin, the world’s largest cryptocurrency by market cap, plummet by over 12%, while Ethereum, the second-largest, experienced its steepest decline since 2021. This rapid downturn in the crypto market has sent shockwaves across financial markets, triggering a widespread retreat from riskier assets.
Stock Markets and Commodities Respond
The repercussions of the crypto sell-off were not confined to digital currencies alone. The U.S. stock futures traded sharply lower, with the Nasdaq 100 poised for its biggest opening drop in over four years, down by more than 4.5%. Asian markets were also hit hard; Japan’s benchmark stock index recorded its largest one-day fall since October 1987, closing down 12.40%. Taiwan’s stock index plunged 8.4%, marking its worst sell-off since 1967.
Commodities mirrored the downward trend, with oil prices extending losses to reach the lowest levels seen in seven months. Brent crude fell by 2.2%, nearing $75 a barrel. Even gold, typically seen as a safe haven during market turbulence, couldn’t escape the sell-off, dropping by 1.5%.
Impact on Pakistan’s Financial Markets
The crypto sell-off also had a ripple effect on Pakistan’s financial markets. The KSE-100 Index, the benchmark of Pakistan’s stock market, plummeted by 1,141.5 points, or 1.46%, to close at 77,084.48. This decline in the stock market coincided with continued pressure on the PKRPKR exchange rate, which depreciated by 12.89 paisa against the US Dollar during Monday’s interbank session, closing at PKR 278.63 per USD.
Sector-wise Performance and Broader Market Impact
Sector-wise analysis revealed that the KSE-100 Index was dragged down by significant losses in Commercial Banks, Power Generation & Distribution, Oil & Gas Exploration Companies, Cement, and Technology & Communication sectors. Despite these losses, the Fertilizer sector provided some support, contributing positively to the index.
The broader All-Share Index also ended the day in negative territory, falling by 546.58 points, or 1.10%, to close at 49,204.70. The market saw a total volume of 501.19 million shares, with a traded value of Rs21.06 billion.
Outlook Amid the Crypto Sell-Off
The ongoing crypto sell-off, coupled with broader market declines, underscores the heightened volatility and risk aversion prevailing in global financial markets. As the PKR exchange rate continues to face downward pressure and global uncertainties persist, market participants in Pakistan and beyond are likely to remain cautious in the coming days.
Investors will be closely monitoring developments in the global economy and the crypto market, with a focus on how these trends will impact both traditional financial markets and emerging asset classes.
