May 13, 2022.
The market crashed and burned this week. Why is the only question left.
There is no simple answer, although a few factors may be to blame.
Alkesh Shah, Bank of America's global digital asset strategist, told Fortune this week that rising inflation, interest rate hikes, and the Ukraine war could be to blame.
The factors have created problems for the company. Consumer prices rose more slowly in April than in the month before, but still faster than economists had expected. The Fed hiked interest rates this month for the first time in 22 years. Russia shows no signs of relenting on its invasion.
$200 billion in value was erased in just 24 hours. Around 42% of the market is made up of Bitcoin, which dropped to a 90-day low of $26,350. The coin was down 15% for the week and more than 50% from its November high of $69,000 when it recovered to $30,000 on Friday.
The stock market has fallen recently, which is one of the factors weighing down the stock market. Bank of America analysts wrote earlier this month that, although long-touted by supporters as an inflation hedge, it is behaving more like a risk asset. The S&P 500 and the tech-laden Nasdaq are correlated with gold, but the largest cryptocurrencies by market cap is not.
When tech stocks tank, so do digital assets. Tech stocks started the week poorly, with the Nasdaq closing down 4% on Monday and then 3% on Wednesday before regaining some ground on Friday afternoon. The major averages lost ground this week, with the S&P 500 falling 2.5% and the Dow falling 2%.
The collapse of TerraUSD earlier this week was a source of investor uncertainty. When the stable coin fell well below its peg to the dollar, it decimated the broader market. The point of the stablecoin and others like it was to offer a safe haven for investors who want to avoid the fluctuations of other cryptocurrencies.
After a week of turbulence, UST lost its peg and traded as low as 13 cents on Friday. Luna was nearly worthless overnight after trading for $80 a week earlier. The death spiral was caused when investors rushed to withdraw their money when the stable coin dropped. Luna and UST were delisted by major exchanges to protect consumers.
The crash has been described as a major milestone or the end of days by some analysts. According to a new report by Bank of America Research, it was the worst implosion since May 2021, and that it measures up to both the 2008 financial crisis and the dotcom crash.
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