Crypto investors search for direction in market rout

Cryptocurrencies are among the most speculative of assets, prone to the famous vagaries of investors and their animal spirits.

As the prices of artificial intelligence (AI) stocks have swollen over the past two years, so, too, have crypto valuations. That now most household of names, bitcoin, has at times tracked and exceeded the feverish investment in the tech sector.

Worth about $30,000 (€26,000) in September 2023, the currency topped $100,000 in May – and appears to have peaked at $126,000 early last month.

However, as concerns have mounted about wild overvaluations in the tech sector and an AI bubble – as well as concerns about the pace of interest rate cuts – the digital currency has since lost more than 25 per cent of its value.

Bitcoin and other cryptocurrencies plummeted fast in November, falling much farther and faster than equities and commodities. It has been a rout, forcing crypto-hoarding companies to ditch their holdings in order to prop up their own share prices.

Ian Plunkett was global head of policy communications at Twitter before going on to help found the Blue Owl consultancy group. He says that despite having “anti-establishment credentials”, cryptocoins are now “broadly correlated with the market”.

“This means that as the ‘AI-bubble’ shocks the macro economy, it also shocks the digital asset ecosystem. They are not safe-haven assets. They never were.”

Paul Sommerville of Sommerville Advisory Markets in Dublin agrees.

“Crypto is a ‘risk-on’ asset,” he says. “It does well when investors are feeling euphoric and other parts of the very risky end of the market such as ‘meme stocks’ are doing well. It shows no sign of being a haven of any description thus far, as many fans argue.

“It trades as a leveraged play on general optimism. It is currently doing badly as other highly speculative stocks are getting mauled also.”

The value of bitcoin has fallen sharply since reaching record highs in October.