Equity and Crypto Markets Tank, Sparking Investor Jitters

Risk assets endured a turbulent week, plummeting on Tuesday and Wednesday due to inflation concerns, followed by a steep decline on Friday. The S&P 500 witnessed its largest weekly sell-off since October 2023, with the losses escalating along the risk spectrum. Bitcoin's dominance surged above 55%, coinciding with a significant sell-off in altcoins. Memecoins and newly launched tokens suffered heavy losses, exacerbating the overall market correction, a phenomenon likely compounded by tax-related liquidity drains in the United States.

Equity and Cryptocurrency Markets Plummet, Sparking Concerns

This week witnessed a significant decline in risk assets, with a precipitous sell-off on Tuesday morning, exacerbated by a discouraging inflation report and persistent downward pressure throughout Friday's trading session. The S&P 500 index experienced a 1.7% loss, marking its most substantial weekly sell-off since last October's market bottom. The severity of losses intensified further out along the risk curve.

Bitcoin's peak-to-trough decline exceeded 10% this week, although it remained relatively modest compared to the significant drawdowns experienced by other cryptocurrencies. Notably, Bitcoin's price decline coincided with a surge in its dominance, leading to a massacre of altcoins.

Bitcoin Dominance breached a resistance level that had persisted since December 2023, surpassing the 55% mark for an extended period since April 2021. This upward movement paralleled a significant decline in the ETH/BTC ratio, which rejected the crucial 0.05 support level and established a new 2024 low.

Despite previous optimism on Crypto Twitter that a rejection of the 55% level in Bitcoin Dominance would herald the onset of alt season, the violent upswing witnessed today challenges such notions.

Along the risk curve, popular memecoins and recently airdropped tokens endured even more substantial losses on Friday, ranging from the low teens to the high twenties percentagewise.

This downturn coincides with the commencement of tax season in the United States, which is believed to be inducing a significant liquidity drain as individuals liquidate assets to cover tax liabilities from 2023's market gains.

Friday represented the final opportunity for many traders to sell in time to meet their tax obligations, raising the possibility of a market rebound next week with this added selling pressure subsiding.

Analysts at Morgan Stanley had previously warned of a $265 billion capital gains tax selling event, contributing to the recent market volatility.

In conclusion, the recent sell-off in both equity and cryptocurrency markets has raised concerns among investors. While the impact of tax season may provide a partial explanation for this downward pressure, it remains to be seen whether markets will rebound or further decline in the coming weeks.