Crypto Outlook Doubtful With Current Market Drawdown
By Chibuike Osigwe
The performance of the crypto currencies market in 2021 had won over many bystanders who looked to the new year with optimism. Events since then have produced wild swings that have shaken all but the very strong believers and raised questions about whether this is the end or just the beginning.
Over billion people are expected to have invest in cryptocurrencies by the end of 2022, according to the trading platform crypto.com, However, the current crypto drawdown amid certain global events will task the risk appetite of many a would-be investor. Cryptocurrencies have joined other global securities in the current market plunge mainly because investors are wary of the likely impact of the planned hike in interest rates this year by the U.S. Federal Reserve Bank as it ends its economic stimulus programme.
The dip has also intensified with the current conflict In Ukraine. As such, investors are now moving funds out of volatile and riskier assets to the less risky ones resulting in the wipe out of over one trillion dollars in value from the crypto market, with Bitcoin falling more than 50 percent from its November peak.
In 2021, crypto assets had a breakout year and prices rallied more than ever before, with lots of coins reaching their all-time high and at the same time enriching and increasing fortunes of traders and investors. Over $1.5 trillion was added to the overall market value, trippling it to almost $3 trillion.
The value of Bitcoin increased 65% while Ether, the second-biggest crypto coin, rose to over 408%. Binance Coin (BNB), the third-biggest, outperformed both Bitcoin and Ether gaining over 1,300% in 2021. Other altcoins benefitted from the rally while the dog-inspired meme coins Shiba Inu and Dogecoin saw major gains.
Crypto Market Versus Stock Market
Current performance data has shown that there is a strong correlation between cryptocurrencies and major equities like the S&P 500 and Nasdaq 100. This means that the crypto market seems to be tracking the moves of stocks and when stocks go up or down, major cryptocurrencies are more likely to do the same. This is very evident in the recent drop in stock prices along with those of cryptocurrencies like Bitcoin and Ether.
Growing concerns over how the U.S. Federal Reserve will handle accelerating inflation is the main fuel for the high volatility in equities as well as cryptocurrencies. The Nasdaq 100 has dropped 13 percent in 2022, with Bitcoin and Ethereum following with 20 percent and 30 percent respectively. January’s aggressive selloff in Bitcoin which saw the price below $33,000, affected the risk appetite of crypto traders and investors. According to CryptoCompare, the total trading volume on crypto exchanges for spot trading slumped to over 1.8 trillion in January, which corresponds to 30 percent from the previous month.
Investors turn to Commodities
Amid the conflict in Ukraine, investors are also turning to commodities, especially gold, as a means of hedging against the current market conditions. Gold rallied while Bitcoin fell. This has had many asking if Bitcoin is truly the “Digital Gold” that can be a haven when global equities are falling.
Gold reached over $1,974 last week, reaching its highest peak since September 2020 while the coronavirus pandemic raged. On the other hand, Bitcoin has dropped almost 50 percent since its all-time high in November. Prices of other commodities are moving up as well, including Brent Crude Futures, which traded over $100 per barrel last week for the first time since 2014. The prices of aluminium, nickel, silver and wheat have also surged.
“This is the first time Bitcoin has ever encountered a potentially major global conflict, and I expect that the decline will continue as long as stocks are under pressure, ” said Tom Essaye, a former trader at Merrill Lynch and the founder of “Sevens Report” newsletter. “Gold is doing exactly what it should be doing right now as it’s a more matured asset and it has a proven history in these types of conflict.”
Regulatory Fears The U.S. sanctions oo Russia announced by President Biden last week Thursday is basically to limit Russia’s ability to do business in the US dollars and to further isolate them from transacting with other U.S. allies. This has led to the speculations that crypto especially DeFi aspect which is seen as an alternative to the traditional finance would be utilized by the Russians to escape the effects of those sanctions.
Lots of traders worry about what the crypto outlook would be should this come into play, given that it will likely have a major impact on the market that might include extreme regulations on cryptocurrencies.
“FinCEN’s 2019 guidance shows that peer to peer exchanges or decentralized exchanges that function as money transmitters are subject to Bank Secrecy Act and therefore must adhere to sanctions and centralized exchanges that are registered with any state authorities would have the responsibility to comply with sanctions,” said J. Ashley Ebersole, a law partner at Bryan Cave Leighton in New York.
The Upside The current bearish run everyone is losing as well. According to data from Bloomberg Hedge Fund Indices, digital-asset hedge funds lost 14.2% in January. The crypto market do have its turns and a lot can change in a short time.
By this time last year, El Salvador hadn’t begun its Bitcoin journey, Tesla wasn’t holding Bitcoin, there was no U.S. Bitcoin ETF, the non-fungible token (NTF) market was almost non-existent and Litecoin was a among the top-ten coins.
Today Litecoin is ranked below 20th on CoinGecko, replaced by Ethereum rivals Binance’s BNB, Cardano and Solana and Avalanche. Stable coins are now in high demand due to high crypto participation. The crypto market value has increased from $700 billion to over $1.5 trillion and people are now buying lands in the metaverse.
This is an evidence of how things can rapidly and progressively turn around in the crypto market.
The current happenings in the crypto market give little room for bullish forecasts. However, the crypto adherents remain unperturbed; for them, the crypto winter is here and they have to wait for signs of spring.
Chibuike Osigwe is an Abuja-based data analyst and equity trader.