After a difficult start to 2022, cryptocurrency investors are facing even more uncertainty. Concerns about a hawkish Federal Reserve are threatening to flatten risk appetite throughout markets, so analysts are prepared for greater gyrations in cryptocurrencies such as bitcoin.
In recent days, the volatility that has always been associated with digital currencies has been on full show. 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 halves from its November peak, reports Arab News.
Its major competitor, ether, has risen roughly 45 percent to around $3,200 since Jan. 24, having followed an almost 56 percent drop from its historic level of $4,868 in November.
While people in favor of digital currencies once boasted about their lack of linkage to other assets, dogecoin and its peers have seen massive gains in the last two years, rallying alongside stocks as the Federal Reserve and other central banks pressurized extraordinary amounts of stimulus into the world economy.
Since March 2020, BTC has increased by 1,039 percent, while ether has increased by 2,940 percent, despite multiple stomach-churning selloffs in both digital currencies.
Investors realigning their holdings to compensate for a much more aggressive Fed, which is now forecast to hike rates quite so many as seven times this year because it fights soaring inflation, has caused their current volatility. The S&P 500 index is dropped 5% year to far, while the Nasdaq Composite is down 9.3 %.
Concerns that an overzealous central bank compression cycle may cripple riskier assets in the future have made it hard for some investors to retain their positive stance on Litecoin and other cryptos, an investment vehicle that is already known for its high volatility.
Investors noted that political unrest in Ukraine, where Washington has warned that a Russian invasion might start at any time, may cause wide market movements. Bitcoin has “truly become the quintessential momentum trade,” according to a senior analyst at Oanda, Ed Moya. “There are so many dangers that might precipitate a 40% decline out of nowhere.”
The volatility of Bitcoin hasn’t deterred some experts from attempting to determine the currency’s fair worth or identifying potentially significant price levels. Based on its instability in contrast to gold, another commodity that experienced investors use to buffer their holdings against the market and economic instability, JPMorgan analysts put bitcoin’s present fair value at about $38,000 – almost 15% below its previous price.
Meanwhile, according to statistics from BofA Global Research, linkages between BTC and the S&P 500 hit an all-time high on January 31, undermining the argument for those seeking to utilize the virtual currency as a buffer against market turmoil.