Bitcoin off to its worst annual start since 2012

The Covid-19 pandemic helped bitcoin break further into the mainstream as institutions and retail investors got involved with the crypto market and its ancillary projects while governments and central banks provided record amounts of stimulus. Now that the Federal Reserve has turned more hawkish, riskier assets like stocks and digital assets have suffered.

“Cryptocurrencies are likely to remain under pressure as the Fed reduces its liquidity injections,” said Jay Hatfield, CEO of Infrastructure Capital Advisors. “Bitcoin could end 2022 below $20,000.”   

Bloomberg Intelligence’s Mike McGlone said $40,000 is an important technical support level for the digital token. Cryptocurrencies are a good barometer for the current reduction in risk appetite. But he projects that bitcoin will eventually come out ahead as the world increasingly goes digital and the coin becomes the benchmark collateral.

“Tighter Fed policy affects not only interest rates but the equity risk premium as the Fed withdraws funds from the capital markets. Riskier investments such as unprofitable tech, meme stocks and cryptocurrency are disproportionately affected relative to the rest of the market since those investments are about twice as volatile as the overall market so have double the risk premium as the average stock,” said Hatfield. 

Digital asset investment products saw outflows totalling a weekly record of about $207m, according to data compiled by CoinShares. Bitcoin saw about $107m in outflows, the asset management firm said. 

Noelle Acheson, head of market insights at Genesis Global Trading, noted said bitcoin’s slump appears to be driven more so by short-term traders of the coin than long-term holders. In fact, her analysis shows that long-term holders are “buying the dip”.        

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