Wall St Week Ahead Crypto investors are in for more uncertainty following rocky start to 2022.
Investors are anticipating further exuberance in bitcoin and cryptocurrencies, as worries over the hawkishness of the Federal Reserve threaten to squelch the appetite for risk across markets.
The volatility traditionally associated with cryptocurrencies is evident during the last few weeks. Bitcoin , the largest cryptocurrency, is now up around 33% since Jan. 24. It was last traded at $43,850. It's rebounding from it's plunge, which cut its price by half from its November record highest. The primary competitor, ether , is up about 45percent since January. 24 when it was trading around $3200 as of Jan. 24, following a 56 percentage plunge from its previous record-setting $4,868 the same month in November.
While proponents of cryptocurrencies once boasted of their lack of a correlation to other assets however, bitcoin as well as its rivals witnessed huge gains over recent two years. They've risen like stocks when the Fed or other central banking institutions pumped incredible amounts of stimulus into the global economy. Bitcoin has increased by 1,039 percent since March 2019, and the ether price has increased 2940%. But the growth in both cryptos have been disrupted by stomach-churning sales.
Their recent volatility comes amid a wider downturn in the market, triggered by people refining their portfolios to prepare for a more aggressive Fed which is forecast to raise rates in the range of seven times this year to combats rising inflation. The index that is the benchmark S&P 500 index (.SPX) has dropped 5.5 percent from the beginning of the year, while the high-tech Nasdaq (.IXIC) lost 9.3%. dropped 9.3 percent..
An edgy Central Bank tightening process going forward will hurt the risky assets have made it difficult for traders to keep their optimistic view on bitcoin as well as other cryptos which is an asset class that has been identified with intense volatility.
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Bitcoin It has "really become the most powerful mover and numerous risks that could result in a 40% decline suddenly," said Ed Moya Oanda's senior analyst. Oanda.
There are a few analysts from attempting to estimate the value of the currency and identifying potential prices.
Analysts at JPMorgan estimate bitcoin's current price at around $38,000 - some 15% lower than the current cost based on the volatile nature in comparison to that in gold, a similar asset which investors typically use to protect their portfolios from market volatility and inflation.
Vanda Research, meanwhile, reported in a recent document that most of the bearish bets on a weaker bitcoin value were put in at around $47,000 "there could be a huge short squeeze if the threshold is crossed and retail investors are reintroduced to trading crypto."
While bitcoin's correlations with and the S&P500 hit an all-time high on January 31st, as per data from BofA Global Research, undercutting the arguments for those looking that they can use the cryptocurrency to a hedge against market turbulence.
Investors will be getting minutes of the Fed's recent monetary policy meeting, due out Wednesday. Walmart (WMT.N) as well as chip maker Nvidia Corp (NVDA.O) will be among the companies reporting resultsas earnings season begins.
Some investors are making plans to weather the volatility of bitcoin, betting that the long-term benefit in blockchain technology the built in supply limit, and the effects it generates, will last despite the frequent price changes.
Jurrien Timmer, director of global macro at Fidelity, likened the current cryptocurrency market to the turmoil experienced by tech stocks in the dotcom boom nearly two decades ago. This was a boom and bust era that saw only the smallest number of companies remaining.
"Amazon continues to exist and Apple remains around and they're bigger than ever . the idea is that with bitcoin, it will be the same," his statement reads. "But bitcoin isn' make money f from these waves of speculation or sentiment."
Bitcoin could reach 100,000 by 2023. Timmer claims, in accordance with his supply/demand models.
Others are of the opinion that mature currencies like Bitcoin and Ethereum are not likely to provide the amazing gains they have seen since the time of their creation.
Instead, they are looking at the possibilities of new alternative currencies that are creating to profit of the money pouring into the crypto market such as the metaverse and NFTs, which received $30 billion worth of venture capital investments last year, according to PitchBook.
Other altcoins include cosmos Terra Luna, and Polkadot that are all down by 20.5 percent as of 38%, 20.5% and 25.5 percentages year-todate, respectively, as per coinmarketcap.com.
Knowing the risks associated with the financial sector and decentralized banking is likely to be one of the most important challenges for investors by 2022, says Lily Francus, director of quantitative research strategy at Moody's Analytics.
Cryptocurrencies "are likely to remain extremely volatile going forward, but there are some major players on the institutional and retail side who are growing, therefore the interest is still growing," said Oanda's Moya.