WASHINGTON, DC (Parliament Politics Magazine) – Concerns about a hawkish Federal Reserve are threatening to dampen risk appetite across the markets, so investors are ready for additional gyrations in other cryptocurrencies including bitcoin.
In recent weeks, the volatility that has always been associated with cryptocurrencies 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 half from its November peak. Its biggest competitor, ether, has risen roughly 45 percent to around $3,200 since Jan. 24, after plunging nearly 56 percent from a record high of $4,868 in November.
Sure the proponents of cryptocurrencies once boasted about their lack of correlation to other assets, bitcoin and others have seen massive gains in the last two years, rallying alongside stocks as the Federal Reserve and various central banks pumped unexpected amounts of stimulus into the economy of the world. Although the increases in both cryptocurrencies have been interrupted by multiple toe-curling selloffs, bitcoin has increased 1,039 percent since March 2020 and ether has risen 2,940 percent.Â
Investors are seen recalibrating their portfolios to account for a more proactive Fed, which is now forecast to hike rates at least seven times in the current year as it fights soaring inflation, which has caused the recent volatility. The S&P 500 index (.SPX) is down 5.5 percent year to date, and the tech-heavy Nasdaq (.IXIC) index is down 9.3 percent.
Concerns that an intense central bank tightening cycle may cripple riskier assets in the future has made it very hard for some traders to retain their bullish stance on bitcoin and others, an asset class that is known for its high volatility.
Bitcoin has “truly become the ultimate momentum trade,” according to Ed Moya, senior analyst at Oanda. “There are so many dangers that might precipitate a 40% decline out of nowhere.”
The volatility of Bitcoin hasn’t deterred some analysts from attempting to determine the currency’s fair worth or identifying potentially significant price levels.
Based on this volatile nature of cryptos in comparison to gold, another commodity investors frequently use to hedge their portfolios against economic instability and inflation, JPMorgan’s estimation puts bitcoin’s current fair value at around $38,000 – almost 15% below its previous price.
