Crypto Stress Is Feeding the Wider Selloff in Global Markets

Cryptocurrencies were once touted as a risk hedge. Now they look more like a risk spreader.

As markets slumped in unison on Thursday, traders pointed to the chaos in crypto as a focal point of their concern. Strategists are increasingly worried that small traders, already nursing losses from the meme stock craze, will be wiped out on their crypto holdings and sell everything else.

“Contagion here is not via linkages between the crypto ecosystem and the traditional financial system, but via retail investors sentiment,” said Nikolaos Panigirtzoglou, global market strategist at JPMorgan Chase & Co. “If the $1 trillion capital loss in crypto markets causes broad-based retrenchment by retail investors in other risk assets such as equities, then that’s where the spillover is.”

Nasdaq futures slid 0.6% and European stocks sank 1.7%, along with other risk assets like commodities. The classic haven trades, like Treasuries and the yen, were bid higher.

The entire crypto space has come under extreme pressure this week, with Bitcoin tumbling below $30,000 and the TerraUSD stablecoin crashing below its dollar peg. The moves have fueled questions about Tether, the biggest stablecoin, and the stability of digital assets.