Bitcoin slump continues, now down 50 percent of November peak
The value of Bitcoin has dropped by over 50 percent, from $69,000, an all-time-high value it had achieved in November last year, BBC reported. This is yet another episode where the cryptocurrency has shown high volatility.
Fears of a Bitcoin slump began in the first half of the last week after reports emerged of the U.S. Federal Reserve tightening screws on its monetary policy. While a sudden crash was expected, the loss in value has been relatively gradual, with the crypto coin consistently dropping value over four days.
Why Federal Policy affects Bitcoin?
As we had reported last week, the Federal tightening of monetary policy is meant to rein in rising prices. The U.S. Federal Reserve hiked interest rates by 50 basis points, its most significant hike in over two decades, a move replicated by central banks in other countries, such as the U.K. and Australia, facing similar issues.
These moves have had a dampener effect on stock markets, with Nasdaq, dropping close to 5 percent on a single day last week and the Japanese benchmark Nikkei down by 2.5 percent on Monday, BBC reported.
In a world where cryptocurrencies were owned only by individual investors, the macroeconomic factors would not have such a significant impact on their valuation. However, trading has become an institutional affair with hedge funds and wealth managers investing in digital assets like cryptocurrencies over the years.
These are usually seen as risk assets and when markets are uncertain, these institutional investors sell them and park their funds in a safer investment, BBC reported. This is why Bitcoin and other crypto coins are seeing a drop in their valuation, something that we have also seen with tech stock in the past week.
What is in store for the future?
After its all-time high last year, Bitcoin had stayed between $35,000 - $46,000 in the past few months, Coin Desk reported. On Sunday, Bitcoin was at $33,710, its lowest since January this year, and dropped further down to $33,445 at the time of writing this. So, while the price might not be in free fall yet, it is definitely going further down in the near future.
If the price falls below $32,951, that would be a new low since July 2021 and a representation of the high volatility attributed to the cryptocoin. Bitcoin accounts for a third of all crypto coin valuations that crossed $3 trillion last year but are now down to $640 billion.
Another worrying event is a tight job market in the U.S. showing robust employment growth. If the trend continues, it could lead to a rise in wages and spiking inflation, which would force the Federal Reserve to bring in additional measures, a move likely to spook institutional investors even more, CoinDesk said in its report.
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