Bitcoin has further to fall before it finds a base to stage any recovery, if the depth of previous routs is any guide.
While the crypto currency's near 75 per cent plunge from its 2021 high has already sent shock waves through markets, it would need to fall below $13,000 to begin matching the magnitude of previous drawbacks.
How long it could take to get there is an open question: the current slump is longer than the average of past cases but still seven weeks shy of the tumble that ended in 2015.
The fallout from FTX.com's recent blowup has so far been contained to the crypto world. The relative calm won't last if Bitcoin's swoon takes it to levels last seen in 2019.
The sense of dread that swept across clients of fallen crypto exchange FTX.com was so intense that they pulled out $430 million worth of Bitcoin in the space of just four days.
On Tuesday, the world's biggest exchange, Binance Holdings Ltd., was set to acquire troubled rival FTX.com, which is in the Top 5, according to crypto data provider CoinMarketCap (which is owned by Binance). But a day later Binance walked away from the deal citing problems with FTX's finances as well as potential regulatory investigations.
Its decision to walk away deepened the ongoing crypto rout, with Bitcoin tumbling to the lowest level in two years.
Sam Bankman-Fried's platform had more than 20,000 Bitcoins going into Sunday, according to data from CryptoQuant. That fell to almost zero by Wednesday after fears about FTX.com's financial health led customers to flee.
Bitcoin is down more than 23 per cent in two days
Holdings of Ether, the largest token after Bitcoin by market value, have plunged more than 75 per cent on the exchange while stablecoin numbers are down almost 40 per cent, according to CryptoQuant.
That's the view of Julian Emanuel, global independent investment banking advisory firm Evercore ISI's chief equity and quantitative strategist, who says that if the biggest digital token plunges past its pre-pandemic high of around $13,850, the hit to investor sentiment could spread to other asset classes. Bitcoin sank 16 per cent Wednesday to below $16,000 for the first time in two years.
While it's nearly impossible to determine what level of threat the crypto meltdown poses to the broader market, Emanuel is now warning that the mere specter of contagion can start to drag other assets lower.
"Price action could dictate both fundamentals and psychology," he said in a note. "Bitcoin below the 2019 high at $13,850 will elevate stress, ending the current equity bear-market rally."
The rout in cryptocurrencies snowballed Wednesday, after exchange Binance walked away from its planned takeover of rival FTX, run by Sam Bankman-Fried. Bitcoin is down more than 23 per cent in two days. The coin had reached a record high of almost $69,000 a year ago.
The spectacular blowup of one of crypto's most respected businesses has rekindled concern that the entire industry is on shaky ground as central banks around the world ratchet up interest rates to combat runaway inflation. Going by the value of all the digital tokens, the sector had already shed around $2 trillion in value before FTX's troubles this week.
