Crypto Market Had a Rocky Start to 2022 and Investors Are Worried

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Investors brace for more gyrations in bitcoin and other cryptocurrencies as concerns about an aggressive Federal Reserve threaten to stifle risk appetite in markets. The volatility traditionally associated with cryptocurrencies has been on full display in recent weeks. Bitcoin, the largest cryptocurrency, is up around 33 percent since January 24 and recently traded at $43,850 (approximately Rs. 33,17,000), recovering from a drop that halved its price from record high of November. Its main rival, ether, is up around 45 per cent since Jan 24 to around $3,200 (approximately Rs. 2,42,100), after plummeting almost 56 per cent from its record high of $4,868. (approximately Rs. 3,68,200), also in November. .

While advocates of CRYPTOCURRENCIES once touted for its lack of correlation with other assets, bitcoin and its peers have made huge gains over the past two years, rallying along with stocks as the US Federal Reserve and other central banks injected unprecedented levels of stimulus in the global economy. Bitcoin is up 1,039 percent since March 2020 and Ethereal is up 2,940 percent, though rallies in both cryptocurrencies have been interrupted by numerous stomach-churning sell-offs.

Its recent volatility has come amid a broader investor-driven market sell-off. recalibrating their portfolios to account for a more aggressive Federal Reserve, which is now expected to raise rates as much as seven times this year while battling rising inflation. The benchmark S&P 500 index is down 5.5 percent so far this year, while the tech-heavy Nasdaq is down 9.3 percent.

Concerns that an aggressive central bank tightening cycle in the future will cripple risk assets have made it difficult for some traders to maintain their bullish outlook on bitcoin and other cryptocurrencies, an asset class already identified with intense volatility.

Rising tensions in Ukraine, where Washington has warned a Russian invasion could start at any moment, could also spark wide market moves, investors said.

Bitcoin “has really become the biggest momentum trade and there are so many risks that can trigger a 40 percent drop out of nowhere,” said Ed Moya, senior analyst at Oanda.

bitcoins volatility hasn’t stopped some analysts from trying to gauge the currency’s fair value or signal potentially important price levels.

JPMorgan analysts estimate bitcoin’s current fair value at around $38,000 (approximately Rs. 28,74,500), 15 per cent below its recent price, based on its volatility compared to that of gold, another asset. that investors often use to protect their portfolios against inflation. and economic uncertainty.

Meanwhile, Vanda Research said in a recent note that most of the bearish bets on a weaker bitcoin price were entered at around $47,000 (approximately Rs. 35,55,200), and “there could be a big compression short if the aforementioned threshold is crossed, and retail investors return to cryptocurrency trading.”

Meanwhile, correlations between bitcoin and the S&P 500 hit an all-time high on Jan. 31, according to data from BofA Global Research, undermining the case for those hoping to use the cryptocurrency as a hedge against market turmoil.

Investors await next week the minutes of the Fed’s most recent monetary policy meeting, due to be published on Wednesday. Walmart and chipmaker Nvidia Corp will be among the companies reporting results as corporate earnings season gets under way.

Some investors are preparing to ride out bitcoin’s volatility, betting that the long-term value proposition of blockchain technology, the built-in supply cap and the network effect it produces, will endure despite frequent price swings.

Jurrien Timmer, director of global macro at Fidelity, compared current speculation in cryptocurrencies to the turbulence tech stocks experienced during the dot-com era more than two decades ago, a boom-and-bust period that saw a comparatively small group of companies leave standing.

Amazon is still around and Apple it still exists and they are bigger than ever and the idea is that for bitcoin it will be the same,” he said. “But he’s not immune to those waves of speculation and sentiment.”

Bitcoin could hit $100,000 (approximately Rs. 75,64,300) as early as 2023, Timmer said, based on its supply and demand models.

Others believe that mature cryptocurrencies like bitcoin and ether are unlikely to deliver the kind of staggering profits they have made since their founding.

Instead, they are looking out into the universe of the new, alternative currencies that are being created to take advantage of money pouring into the crypto space, including the metaverse and NFTs, which generated a venture capital investment of $30 billion (approximately Rs. 2,26,800 crore) last year, according to PitchBook.

Some altcoins include Cosmos, Terra Luna, and Polkadot, which are down around 20.5%, 38%, and 25.5% year-to-date, respectively, according to coinmarketcap.com.

Understanding the risks linked for them, and decentralized finance will be one of the main challenges for investors in 2022, said Lily Francus, director of quantitative research strategy at Moody’s Analytics.

Cryptocurrencies “will continue to be very volatile going forward, but there are major players on both the institutional and retail sides that continue to grow, so interest continues to grow,” said Moya of Oanda.
© Thomson Reuters 2021


Interested in cryptocurrency? We discuss all things crypto with WazirX CEO Nischal Shetty and WeekendInvesting founder Alok Jain at Orbitalthe Gadgets 360 podcast. Orbital is available at Apple Podcasts, Google Podcasts, Spotify, amazon music and wherever you get your podcasts.

Cryptocurrency is an unregulated digital currency, is not legal tender and is subject to market risks. The information provided in the article is not intended to be and does not constitute financial advice, business advice or any other advice or recommendation of any kind offered or endorsed by NDTV. NDTV will not be liable for any loss arising from any investment based on any perceived recommendation, forecast or any other information contained in the article.

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