Bitcoin led crypto markets lower on Tuesday, down around 1% in the past 24 hours to just under $88,000.
This decline occurred even as gold, silver and copper all hit record highs (although they pulled back slightly in Tuesday afternoon trading). US stocks are up slightly, with the Nasdaq gaining 0.45%.
Crypto-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) is down 4.2%, XXI (XXI) is down 7.8%, ETHZilla (ETHZ) is down 16% and Upexi is down 9%.
Other significant decliners included Gemini (GEMI), Circle (CRCL), and Bullish (BLSH), all down around 6%.
Analysts at digital asset hedge fund QCP Capital have flagged tax-loss harvesting as a potential driver of short-term action through the end of the year, particularly in illiquid conditions. This means that investors sell their underwater positions to realize losses, thereby reducing their tax obligations.
“The end of the year usually sees PM [portfolio managers] reduce their exposure to risk assets not only with the upcoming holidays, but also by 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 on BTC and ETH perpetual futures contracts – down approximately $3 billion and $2 billion, respectively – has reduced leverage and made crypto markets more vulnerable to sharp price swings.
“This vulnerability is reinforced by Friday’s record Boxing Day options expiration, which represents more than 50% of Deribit’s total open interest,” the company said in a morning note. “Although bearish positioning has eased, the persistence of calls to $100,000 suggests residual, albeit tepid, optimism for a Santa rally.”
Nonetheless, QCP expects any sharp moves to fade in the new year: “Holiday-related moves have historically tended to revert to the mean, with price action often fading as liquidity returns in January. »
Looking ahead to next year, Wincent’s Howard expects more consolidation with no imminent catalyst to retrace the decline from early October highs.
“It will be several months before the asset class can return to a market capitalization of $4 trillion,” from the current $2.6 trillion, he said.
