Why crypto’s slide is rattling Wall Street
- The San Juan Daily Star
- 1 hour ago
- 2 min read
By BERNHARD WARNER
After a brutal and volatile week, bitcoin was down slightly earlier this week. Crypto tokens have lost more than $1 trillion in market value since their October peak, according to Deutsche Bank, stoking fears that the sell-off has further to run.
Crypto die-hards have been here before, in the “crypto winter” of 2021 and 2022 and the collapse of Sam Bankman-Fried’s FTX. But the market is much bigger today — around $3 trillion globally — after the Securities and Exchange Commission last year approved spot bitcoin exchange-traded funds and the Trump administration embraced digital tokens.
The increased exposure has given rise to fears of a crypto rout slamming Wall Street this time.
“This is no longer a hobbyist asset class,” Lisa Shalett, the chief investment officer at Morgan Stanley Wealth Management, told DealBook. Asset management giants, including BlackRock and Fidelity, have helped take crypto mainstream. Harvard University and the Czech central bank have stocked up on digital tokens, too.
The rise of ETFs tied to bitcoin and other digital assets has “democratized the ownership,” Shalett said. It has also spread the risk.
The downside was on full display last week. Investors yanked money from bitcoin ETFs at a frenzied clip as the price briefly fell below $81,000. Roughly $3.8 billion flowed out of crypto ETFs from Nov. 1 to Nov. 19, according to Morningstar.
But the outflows are not at the level of 2022, said Bryan Armour, the Morningstar director of ETF and passive strategies research for North America.
There’s also more borrowed money in the market lately, analysts say. That could amp up the volatility, as was the case last month during a record $19 billion wipeout. Even a smaller crash could dent other parts of the market, especially if investors were forced to sell other assets, including stocks, to cover their crypto positions.
That fear grew after a stock market plunge Thursday that followed a drop in crypto prices. Steve Sosnick, the chief strategist at Interactive Brokers, wrote in a note to investors that Wall Street pros now see bitcoin volatility as “a signal” for wider market instability.
Could crypto foretell a wider market correction? “A lot of bigger, stickier money” — as in buy-and-hold institutional investors — has moved in, Armour noted, which may explain why the outflows this month are tamer so far than in 2022. (Also worth watching: Will the next price plunge invite a new wave of buying?)
Don’t count out crypto’s potential to move markets. “I don’t think this is a big systemic risk,” Shalett added. “But I do think there is bleed-over.”
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