In an unexpected turn of events, the world of cryptocurrency and its affiliated companies witnessed a challenging day this Tuesday. Investors in various cryptocurrencies and mining-focused companies saw their assets dwindle, as competing assets siphoned away their value, leading to widespread distress in the market.
One notable casualty was Marathon Digital Holdings (NASDAQ: MARA), which experienced a staggering price decline of more than 14%. Similarly, TeraWulf (NASDAQ: WULF) took a dip, falling by over 10%. Even popular altcoin Bitcoin Cash (CRYPTO: BCH) wasn’t spared, facing a nearly 8% downturn.
So, what’s causing this turbulence?
The key factor at play is the resurgence of the 10-year Treasury note’s yield, which had retreated from its 16-year high just last week. The rally that commenced on Monday carried into Tuesday, with Treasury yields, often considered one of the safest investment options globally, reaching new heights at over 4.8%.
Why does this matter to crypto investors, you may wonder? Well, it’s because Treasury yields and cryptocurrencies are, in essence, competitors. Cryptocurrencies, tokens, and the companies involved in mining and trading them are generally seen as riskier investments. This stands in stark contrast to Treasuries, which are backed by the belief (or hope) that the U.S. federal government will never default on its debt. Investing in Treasuries is akin to a nearly foolproof bet.
With the value of such safe assets on the rise, all else being equal, the demand for riskier crypto assets weakens. This explains the widespread decline in cryptocurrencies and related stocks observed on Tuesday.
In fact, Tuesday afternoon offered little solace for crypto enthusiasts, as major crypto investments like Bitcoin and Ethereum were also headed south. Therefore, Bitcoin Cash, Marathon, and TerraWulf found themselves in the company of others experiencing the downturn.
However, it’s worth noting that the crypto market has a history of swift recoveries after such downturns. Nonetheless, immediate recovery may not be on the horizon, especially if Treasury yields remain elevated.
Furthermore, the Federal Reserve is prepared to raise interest rates again, with their primary concern being inflation. Any signs of inflation resurfacing could trigger a rate hike. Notably, non-core components of the Consumer Price Index (CPI), such as gasoline, may experience price increases, even though crude oil prices have shown some signs of easing in recent days. Overall, the crypto market’s future remains uncertain in the face of these developments.
