Bitcoin led the cryptocurrency markets lower on Tuesday, falling about 1% in the last 24 hours to just below $88,000.
The drop came even as gold, silver and copper hit record highs (although they pulled back a bit in Tuesday afternoon trading). US stocks are slightly ahead: the Nasdaq gains 0.45%.
Cryptocurrency-related stocks were showing much steeper declines than bitcoin’s decline might suggest.
The worst performing companies of the year, digital asset treasury companies, were hit the hardest across the board. Strategy (MSTR) was down 4.2%, XXI (XXI) was down 7.8%, ETHZilla (ETHZ) was down 16%, and Upexi was down 9%.
Other major decliners included Gemini (GEMI), Circle (CRCL), and Bullish (BLSH), all down around 6%.
Analysts at digital asset hedge fund QCP Capital pointed to tax loss harvesting as a possible near-term driver for stocks through the end of the year, particularly in illiquid conditions. That means investors sell their underwater positions to realize losses and reduce their tax liabilities.
“At the end of the year normally the prime ministers [portfolio managers] cutting their exposure to risk assets not only with the upcoming holidays, but also creating taxable events and year-end balance sheets that in some cases do not want to show cryptocurrency holdings,” explained Paul Howard, senior director at trading firm Wincent.
QCP also noted that the continued decline in open interest in BTC and ETH perpetual futures (which fell by around $3 billion and $2 billion, respectively) has reduced leverage and left crypto markets more vulnerable to large price swings.
“This vulnerability is compounded by Friday’s record Boxing Day options expiry, which represents more than 50% of Deribit’s total open interest,” the firm said in a morning note. “Although bearish positioning has eased, the persistence of $100,000 calls suggests residual, albeit tentative, optimism about a Santa Claus rally.”
Still, QCP expects any sharp moves to fade in the new year: “Historically, holiday-driven moves have tended to reverse, with price action often fading as liquidity returns in January.”
Looking ahead to next year, Wincent’s Howard expects further consolidation with no imminent catalyst to recover the decline from early October highs.
“It will be many months before the asset class can pull back to a market capitalization of $4 trillion” from the current $2.6 trillion, he said.
