After peaking just below $67,600 on 8 November, Bitcoin has lost more than half its value and dipping below $33,570 on 24 January, wiping out more than $600 billion in value, according to Bloomberg. In the past three months crypto’s erased more than $1 trillion in digital wealth.
The reason being sold on The Street is the U.S. Federal Reserve’s guarantee of higher interest rates soon. As rates lift off the rock bottom where the Fed has left them for almost two years, putting money into riskier assets, including, for example, tech “growth” stocks and SPACS, is too risky as cash becomes more expensive.
Crypto’s value has coupled with those chancy stocks, such as blue-sky tech companies, on its way down.
“Crypto is reacting to the same kind of dynamics that are weighing on risk assets globally,” Stephane Ouellette, CEO of FRNT Financial, a crypto platform, confirmed to Bloomberg.
Crypto-related stocks also have followed the coins’ descent, with Coinbase Global losing nearly 16 percent of its value recently and fell to its lowest point since going public in spring 2021, Bloomberg noted.
There has been a 60-percent correlation to date between Bitcoin’s price moves and that of the ARK Innovation ETF, a basket of highly speculative stocks. In contrast, Bitcoin and gold have moved in tandem only 14 percent of the time, Bloomberg found.
The plunge is “reminding us to categorize Bitcoin and altcoins as risk assets rather than safe havens,” Katie Stockton, founder of research firm Fairlead Strategies, told Bloomberg.
“Bitcoin is being battered by a wave of risk-off sentiment,” Antoni Trenchev, co-founder of the Nexo crypto platform, said to Bloomberg.
“For further cues, keep an eye on traditional markets,” he added. “Fear and unease among investors is palpable.”
In the wake of cryptos’ bruising losses, the Biden administration is crafting a federal strategy toward digital assets that could be unveiled as soon as next month and will assign federal agencies to weigh the assets’ opportunities and risks, Bloomberg reported.
TREND FORECAST: While crypto’s are down we maintain our forecast they are not down and out.
On the downside, should bitcoin fall below $25,500 per coin, it could well tank below $10,000 per coin. On the upside, should bitcoin hit and maintain the $50,000-$55,000 per coin range, we forecast it will hit new highs.
TREND FORECAST: As the U.S. Federal Reserve closes its bond-buying program and raises interest rates, as we note, money will tend to hew more closely to value investments rather than growth stocks and speculative investments.
And, we maintain our forecast that what will stall the crypto market is government intervention. The U.S. Securities and Exchange Commission already has begun taking steps to regulate the crypto market.
As we noted in “Bitcoin ETFs in Prep as SEC Highlights Path to Approval” (24 Aug 2021), regulating Bitcoin ETFs is the step that legitimizes oversight and regulation of other cryptocurrencies. Those that are regulated will become new vehicles for serious investors but will surrender some ability to innovate; those that remain outside regulation will test new technologies and approaches but remain the province of speculators.
There is room for both.