The Week Ahead On Wall Street: After A Bumpy Start To 2022, Cryptocurrency Investors Face Even More Uncertainty

NEW YORK (CBSNewYork) – Concerns about a hawkish Federal Reserve are threatening to dampen risk appetite across markets, so investors are ready for additional gyrations in bitcoin and other cryptocurrencies.

Bitcoin Has Increased 1,039 % And Ether Has Risen 2,940 %

The volatility that has always been linked with cryptocurrencies has been on full display in recent weeks. Bitcoin, the most popular cryptocurrency, has risen by roughly 33% since January 24 and is currently trading at $43,850, after a drop that saw its price fall by half from its November peak. Its biggest competitor, ether, has risen roughly 45 % to around $3,200 since Jan. 24, after plunging nearly 56 % from a record high of $4,868 in November. 

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While proponents of cryptocurrencies once boasted about their lack of correlation to other assets, bitcoin and its peers have seen massive gains in the last two years, rallying alongside stocks as the Federal Reserve and other central banks pumped unprecedented amounts of stimulus into the global economy. Although the increases in both cryptocurrencies have been interrupted by multiple stomach-churning selloffs, bitcoin has increased 1,039 % since March 2020 and ether has risen 2,940 %.

Investors are readjusting their portfolios to account for a more aggressive Fed, which is expected to raise rates seven times this year to combat rising inflation, has caused their recent volatility. Year to far, the benchmark S&P 500 index is down 5.5 %, while the tech-heavy Nasdaq is down 9.3 %. Concerns that an aggressive central bank tightening cycle could damage riskier assets in the future have made it difficult for some traders to maintain their positive view on bitcoin and other cryptos, which are already notorious for their high volatility.

Investors noted that rising tensions in Ukraine, where Washington has warned that a Russian invasion might start at any time, could cause broad market movements. Bitcoin has really become the ultimate momentum trade, according to Ed Moya, senior analyst at Oanda. There are so many risks that can trigger a 40% drop out of nowhere. The volatility of Bitcoin hasn’t deterred some analysts from attempting to determine the currency’s fair worth or identifying potentially significant price levels.

Based on its volatility in comparison to gold, another commodity investors frequently use to hedge their portfolios against inflation and economic instability, JPMorgan analysts estimate bitcoin’s current fair value to be roughly $38,000, or 15% below its previous price. In a recent report, Vanda Research stated that most negative bets on a lower bitcoin price were placed around $47,000, and that if the aforementioned threshold is crossed, and retail investors return to crypto-trading, there might be a major short-squeeze.

Meanwhile, according to data from BofA Global Research, correlations between bitcoin and the S&P 500 hit an all-time high on January 31, undermining the case for those seeking to utilise the cryptocurrency as a hedge against market volatility. Investors will be looking for minutes from the Fed’s most recent monetary policy meeting, which are expected to be released next week. As the corporate earnings season progresses, Walmart and chipmaker Nvidia Corp will be among the corporations releasing results.

Some investors are bracing themselves to ride out bitcoin’s price swings, wagering that the long-term value proposition of blockchain technology, the built-in supply limit, and the network effect it generates would outlast the volatility. Jurrien Timmer, Fidelity’s director of global macro, compared the current turmoil in cryptocurrencies to the instability in tech stocks during the dot-com era more than two decades ago, a boom-and-bust cycle that left just a tiny group of companies standing.

Amazon and Apple are still alive, and they’re bigger than ever, and the expectation is that bitcoin will follow suit, he said. It is not, however, immune to tidal waves of speculation and emotion. According to Timmer’s supply/demand estimates, Bitcoin might hit $100,000 as soon as 2023. Others claim that mature cryptocurrencies like bitcoin and ether will not experience the same kind of exponential growth that they have had since their inception.

Also read: Richard Heart’s Revolutionary Cryptocurrency HEX Explained: HEX CRYPTO Price Prediction For…

Cosmos, Terra Luna, And Polkadot Loses About20.5 %, 38 %, And 25.5 %

Instead, they’re looking to the universe of new, alternative coins that are being developed to take advantage of the money pouring into the crypto world, such as the metaverse and NFTs, which earned $30 billion in venture capital investment last year, according to PitchBook.

Cosmos, Terra Luna, and Polkadot are three cryptocurrencies that have lost about 20.5 %, 38 %, and 25.5 % year-to-date, according to coinmarketcap.com. One of the key issues for investors in 2022, according to Lily Francus, director of quantitative research strategy at Moody’s Analytics, will be understanding the risks associated with them and decentralised finance.

Cryptocurrencies Are going to remain very volatile going forward, said Moya of Oanda. However, there are significant players on both the institutional and retail sides who are still growing, so interest is still growing.