The crypto market is struggling this year, with Bitcoin and top altcoins like Ripple (XRP), Ethereum (ETH), and Cardano (ADA) being in the red. Bitcoin has dropped from $126,300 in October to $76,000, while the market capitalization of all tokens has plunged by double digits.
Why the Crypto Market Winter is Continuing
There are several reasons why the crypto winter has happened this year. For example, the impact of the October 10 liquidation event in which over 1.6 million investors were wiped out over $20 billion. It was the biggest such event in the history of the cryptocurrency market.
When such event happens, it embeds fear among investors, with many of the 1.6 million of them vowing to stay away from the industry.
Bitcoin and top altcoins have also crashed because of the ongoing crisis in the Middle East that has pushed inflation and bond yields higher. The most recent data showed that the headline Consumer Price Index (CPI) jumped to 3.8% in April, while the Producer Price Index (PPI) rose to 6%.
In most cases, crypto prices underperform the market when there are rising hopes that the Federal Reserve will hike interest rates. However, this does not give a good explanation for the ongoing crypto weakness as the stock market has continued to do well this year.
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Ongoing Rotation to AI Stocks
Therefore, the most likely reason why the crypto market continues to underperform the market is because of the ongoing AI boom that has pushed many stocks to record highs.
Indeed, a closer look at the best-performing companies in the S&P 500 Index shows that most of them are in the AI industry. This includes firms like Sandisk, Micron, Lumentum, Intel, and Western Digital. All these companies have benefited from the ongoing boom in the AI industry.
As a result, investors have continued to pump money in these stocks and their exchange-traded funds. For example, funds tracking the S&P 500 Index have added over $80 billion in assets this year. The recently launched DRAM ETF has accumulated over $1 billion in assets.
This performance explains why AI coins like FET, Internet Computer, Venice Token, and Bittensor have soared.
Indeed, in addition to AI companies, investors have pumped their money to companies in the space industry ahead of the SpaceX IPO. The NASA ETF has attracted billions in assets, while top stocks like Rocket Lab, Planet Labs, and Intuitive Machines have all jumped by triple digits this year.
Therefore, the main reason why the crypto market continues to underperform is that investors are focusing on other fast-growing themes like AI and space.
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