Tue. Jan 18th, 2022

Bitcoin gets a push this week as the Federal Reserve prepares for stimulus removal, but bulls feel as encouraged as ever.

The largest cryptocurrency by market value has lost about $ 80 billion since the beginning of the year amid a slump that brought it to its lowest levels since its flash crash in early December. But predictions have come that it could still reach the popular $ 100,000 level at some point this year.

It will more than double from current levels around $ 42,900 to reach that milestone. Analysts say it is not that it can not – it has yielded many triple-digit annual returns over the past decade – but that the way forward may be more difficult for cryptocurrencies with a more fake Fed.

“Cryptocurrencies have benefited from the Fed’s massive liquidity injections since 2020,” said Matt Maley, chief market strategist for Miller Tobacco + Co. “It pushed these assets too far, too fast.”

A chart showing Bitcoin's slump since December

Along with riskier assets such as U.S. equities, Bitcoin and other digital assets tumbled Wednesday after minutes of a recent Fed meeting showed that officials are willing to withdraw stimulus sooner than many previously expected.

The release pointed to earlier and faster interest rate hikes by the central bank, which would increase the cost of capital across the economy. It has the potential to keep investors away from cryptocurrencies, many of which have made huge gains over the past two years amid intensified stimulus.

But not everyone agrees that this environment is bad for crypto. Bitcoin is a risky asset that is evolving into a digital reserve asset in a world that goes that way – and that has positive implications for its price, according to Mike McGlone of Bloomberg Intelligence.

The coin is “on its way to $ 100,000,” he wrote in a note. “Cryptos are tops among the risky and speculative. If risky assets fall, it helps the Fed’s inflation fight. To become a global reserve asset, Bitcoin could be a primary beneficiary in that scenario.

Yet that has not stopped other industry players, such as Messari Inc. co-founder Ryan Selkis, from spotting the basis of some of the sky-high forecasts.

And earlier this week, Goldman Sachs analyst Zach Pandl wrote that Bitcoin could reach $ 100,000 if it continues to take market share of gold.

Bitcoin has so far sung the tune of the stock market, with the 100-day correlation coefficient of the currency and the S&P 500 now standing at 0.44. This is the highest such reading since the fourth quarter of 2020. A coefficient of 1 means the assets are moving in closing step, while minus-1 would show them moving in opposite directions.

“Now that this stimulus is going to become less abundant faster than the markets thought, it makes sense for these assets to fall into tandem,” Maley said.

Graph showing a positive correlation between Bitcoin and stocks

Lindsey Bell, chief market and money strategist at Ally, says investors were already entering the year thanks to uncertainty over the Fed’s policy path.

“People are reconsidering the risk they want to take,” she said by telephone. It does not help the dollar has also strengthened, which serves as a reminder to crypto-investors that it “is still the currency of the world and it still remains very strong and it is going nowhere, so you do not have to stick your money under your mattress or in cryptocurrencies. ”

Greg Bassuk, CEO of AXS Investments, an asset manager that focuses on alternative investments, says Bitcoin should be part of an investor’s portfolio.

“We are very positive about Bitcoin and digital assets cutting through all the noise, day to day,” he said in an interview. “Digital assets will be treated in the longer term in the coming years such as commodities, equities and bonds, and real estate and other more traditional asset classes.”

–With the assistance of Lu Wang.

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