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Cryptocurrency Gauge Slumps on Risk Aversion, Omicron: Index Insights

Asia Financial’s Future of Money index has fallen 10% since December 3 as investors become more risk-averse amid the Omicron variant threat.


The chart shows the impact of a cryptocurrency flash crash on the Asia Financial Future of Money Index between December 3 and December 6. 

 

A brutal weekend for Bitcoin, which at one point lost a fifth of its value, was also a brutal weekend for Asia Financial’s Future of Money index, which has slumped more than 10% since December 3.

As shown in the chart above, its declines were led by Avalanche’s almost 25% plunge and 17% falls for both Cardano and Dogecoin. Helping to steady its performance were shallower drops for Ethereum (down 4.5%) and Binance (down 6.6%) and the stability of both Tether and USD Coin, which each lost just fractions of a percent.

The AF Future of Money index tracks 10 of the most liquid digital coins; the other three cryptocurrencies in its basket are XRP, Solana and Bitcoin

The weekend flash crash was triggered by concerns over the impact of the Omicron variant, a consequent shift away from riskier assets to safe havens, and lower trading volumes on Saturday that exaggerated price moves, said traders.

 

Cascade of Selling

As prices fell further, investors who had bought bitcoin on margin saw exchanges close their positions, causing a cascade of selling. A range of retail-focused exchanges closed more than $2 billion of long bitcoin positions on Saturday, according to Coinglass.

Crypto data platform Coinglass showed open interest – the total number of futures contracts held by market participants at the end of the trading day – across all exchanges was last at $16.5 billion compared with $23.5 billion on Thursday, and as much as $27 billion on Nov 10.

Some exchanges allow traders to place bets 20 times or more the size of their investment, meaning a small move in the wrong direction can cause exchanges to liquidate clients’ positions when their initial investment is gone.

Despite the weekend crash, long-term investors in digital cryptocurrencies are still sitting on handsome profits. Among the best performers, Solana is still up 9,869% so far this year, while Dogecoin is up 2,964% and Avalanche 2,231%. Bitcoin, the world’s largest cryptocurrency, has risen 164%.

 

•By Richa Gandhi and Kevin Hamlin with assistance from Reuters.

 

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Richa Gandhi

Richa Gandhi is a Data Journalist with Asia Financial News Group and has a special interest in data analytics. She is a post graduate in Statistics from Pune University in India. You can reach out to her on Twitter at @RichaG18.

Kevin Hamlin

Kevin Hamlin is a financial journalist with more than 40 years of experience covering Asia. Before joining Asia Financial, Kevin worked for Bloomberg News, spending 12 years as Senior China Economy Reporter in Beijing. Prior to that, he was Asia Bureau Chief of Institutional Investor for ten years.

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