Bitcoin and cryptocurrency prices have somewhat rebounded after a massive sell-off this week.
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Despite rallying since Friday night’s crash, the bitcoin price is down more than 10% on this time seven days ago and nearly 30% from its all-time high of almost $70,000 per bitcoin set last month.
Meanwhile, most other major cryptocurrencies, including ethereum, its biggest rivals Binance’s BNB, solana and cardano, as well as Ripple’s XRP and the meme-based dogecoin have also fallen sharply, wiping away around $300 billion worth of value in a matter of days. A couple of smaller coins, Terra’s luna and Polygon’s matic, have bucked the trend and are both up by around 30% on this time last week.
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The bitcoin, ethereum and broader crypto price crash has been put down to fears over the spreading Omicron variant of Covid-19 and expectations the U.S. Federal Reserve could accelerate its plans to ease its loose monetary policy in the face of soaring inflation and a robust jobs market.
“Digital assets got pushed around by the broader risk-off conditions related to Omicron and expectations of a more aggressive Fed but didn’t properly sell-off until Friday, on contagion from equities,” Martha Reyes, head of research at digital asset prime brokerage and exchange Bequant, said in emailed comments.
This week, the CBOE Volatility Index (VIX) hit its highest level since January as investors balked at the perceived increased risk, though Reyes expects the uncertainty to be short-lived.
“It is rare for the VIX to have such big spikes and usually the market goes on to have positive returns over one to six month periods, as the panic and forced selling from OmniFed subsides—as we saw last January,” Reyes added.
Others have spotted similarities with the March 2020 pandemic market crash and this week’s equity and crypto sell-off—with the market quickly bouncing from panicked lows.
“The current situation resembles closely what happened in March 2020 as we’re seeing equities plunge 5% off recent highs and the negativity is spreading to other markets as well including the digital asset markets,” Anto Paroian, chief operations officer, at crypto hedge fund Ark36, said via email, pointing to as well to wild bitcoin price swings over the summer and “how well the market rebounded afterward.”
However, Paroian warned the bitcoin and crypto market could be headed for more pain in the coming weeks and months as volatility spooks traders.
“One of the key bitcoin bull market indicators—the 20-week simple moving average—has now been decisively breached so the outlook is currently bearish in the short to medium term. What’s potentially worrying in the short term is that the market still seems oversaturated with leverage which creates conditions where the corrections we’ve just seen are likely to repeat.”
The crypto market is still largely led by bitcoin’s price movements, with bitcoin’s fortunes dictating the wider market. Bitcoin is the largest cryptocurrency by value, with a market capitalization of around $1 trillion. Ethereum, the second-largest cryptocurrency, has a combined value of some $500 billion and between them make up well over half of the $2.2 trillion crypto market.
However, bitcoin’s dominance, a measure of bitcoin’s value compared to the wider market has dropped over the last year as smaller coins make outsized gains thanks to the non-fungible token (NFT) craze and surging interest in decentralized finance (DeFi)—using crypto technology to recreate traditional financial services without the need for banks.
Ethereum, the biggest NFT and DeFi platform—along with its major rivals Binance’s BNB, solana and cardano—have all added triple-digit percentages in recent months, and some bullish investors expect them to continue to climb.
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“Savvy investors—both retail and institutional—know that crypto is the future of money,” Nigel Green, the chief executive of financial advisory and asset management group deVere, said in emailed comments. “In times of volatility, in which there are lower entry points to top up portfolios, they typically continue to drip-feed money into the digital assets market.”
Green expects solana, the ethereum rival that’s soared almost 10,000% since this time last year, to outperform both bitcoin and ethereum in 2022.
“[Solana is] likely [to] outperform both bitcoin and ethereum again next year,” added Green, pointing to solana’s “cost-effectiveness” and “momentum driven by a booming DeFi space as retail investors seek alternative funding opportunities and institutional investors continue to pile in.”