Why is the price of the world's largest cryptocurrency Bitcoin crashing? Image Credit: Ador T Bustamante/Gulf News

New York: Crypto had another bad week - and it may only get weirder.

Bitcoin led a decline in digital assets across the whole crypto spectrum, with the world’s largest token set for an eighth straight weekly loss in its longest such slump since August 2011.

Bitcoin fell about 2.2 per cent on Friday to $28,800 as of 1 pm in New York, buffeted by both the macro headwinds of Federal Reserve monetary tightening and the crypto-specific fallout from this month’s implosion of the TerraUSD algorithmic stablecoin, which continues to weigh on digital assets - particularly those related to decentralized finance. Altogether, the crypto market has lost some $500 billion in market value so far in May, a 29 per cent plunge.

For a second day, cryptocurrencies declined even as risks assets such as stocks rose, marking a break from their recent lockstep relationship - and a sign of shaky conviction that could portend a worrisome trend.

The market’s swoon “took a lot of confidence out of the asset class,” Matt Maley, chief market strategist at Miller Tabak + Co., said by email. “Therefore, as investors become a little more confident about the markets in general, they’re looking at other areas in which to buy on weakness. They don’t want to get burned again in the cryptos.”

Ether, the second-largest cryptocurrency, and other altcoins linked to popular DeFi projects like Avalanche and Solana were among the biggest decliners, down between 4 per cent and 7 per cent on Friday. And in the market for nonfungible tokens, even popular collections like Bored Ape Yacht Club and Cryptopunks are coming under pressure, market data show. Meanwhile, short interest in the first US Bitcoin-futures backed exchange-traded fund is near the highest since the fund’s October 2021 inception, as investors step up bearish bets.

With the reverberations from Terra’s collapse hitting altcoins harder, Bitcoin now claims a larger share of the cryptosphere, accounting for 44 per cent of the total market’s value. That’s the most since October, just before the latest bull market peaked, based on data from CoinGecko. But it’s not as if Bitcoin has been spared: It is now down some 60 per cent from its all-time high in November, though it has generally traded in a range of $28,000 to $30,000 in the past couple of weeks.

The biggest cryptocurrency remains below its 20-, 50- and 200-day moving averages. “With each moving average currently sloping lower, it’s the epitome of a downtrend,” Frank Cappelleri, a trading-desk strategist at Instinet, said.