The excess of the last few years in the global market rebounded on the most speculative asset, Bitcoin, which was hit the hardest last week. The largest cryptocurrency slid further into the weekend.
Since late September 2021, when it achieved peak value for the first time, Bitcoin has dropped nearly 42% in just three months as its approaches the $40,000 mark. The second-largest cryptocurrency, Ether, also declined. The popular DeFi tokens like Aave and Uniswap went into the weekend under pressure.
As per Bloomberg News, the Federal Reserve decision to withdraw stimulus shortly to combat inflation has also contributed to the market choppiness. The market reaction, minutes after the report of the Central Bank meeting in December was published Wednesday, indicating faster and earlier than expected rate hike and balance sheet caused the rundown. The Fed action will remove liquidity from the system leading to speculative and high-growth assets losing their shine.
The chief strategist of Miller Tabak+ Co, Matt Maley, said that the more aggressive the Fed Reserve would be, risk assets like crypto would be vulnerable.
Mike McGlone of Bloomberg Intelligence feels that the important technical support level for Bitcoin will be $40,000. Digital Assets like cryptocurrency are a barometer for reducing reduction in risk appetite currently. He projects Bitcoin to lead ahead as the world is significantly digital assets eventually, and Bitcoin will ultimately become the benchmark.
Bitcoin broke into the mainstream during the Covid-19 pandemic as retail and institutional investors increasingly got involved in cryptocurrency and ancillary projects. Risky assets such as Equity stocks and cryptocurrency suffered after the central bank turned hawkish. From the beginning of the New Year till the weekend, the Bloomberg galaxy crypto index fell by 10%.
CEO Eric Ervin of Blackforce Capital feels that a decline in assets across the board might be the start of a mini bear market. New investors may pull out, and long-term investors may be left holding on as primary owners. Investors from the traditional equity stock market may find the volatility nerve-racking, but it is entirely normal for these asset classes. Cryptocurrencies, including Bitcoins, are famous for being volatile, and they can post huge swings on either side within a few minutes.
Weekend trading usually sees thinner volumes and market structure with hundreds of exchanges disconnected with their islands of liquidity, leading to higher volatility. December beginning saw Bitcoin post a weekend crash that lost 21 % in an intraday low.
According to the CIO of Bitwise, Matt Hougan, the price slump makes sense as the Federal Reserve is expected to be more aggressive with its withdrawal of the stimulus. The downturn may remain down for a while because of no catalyst in the short term. However, even as prices are not stable, cryptocurrencies are stronger, and in the long-term, fundamentals will win.
