Bitcoin and cryptocurrency prices have rebounded somewhat after heavy selling this week.
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Despite the rally since Friday night’s crash, the price of bitcoin is down more than 10% at this time seven days ago and nearly 30% from its all-time high of about $70,000 per bitcoin set last month.
Meanwhile, most other major cryptocurrencies, including Ethereum, and its biggest competitors Binance’s BNB, Solana and Cardano, as well as Ripple’s XRP and meme-based dogecoin have also fallen sharply, eliminating nearly 300 billion dollars of value within days. Two smaller currency pairs, Terra’s luna and Polygon matic, bucked the trend and are both up about 30% this time last week.
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Bitcoin, Ethereum and the broader collapse in cryptocurrency prices were set by fears of the spreading Omicron variant of Covid-19 and expectations that the US Federal Reserve could speed up plans to ease its loose monetary policy in the face of high inflation and a strong jobs market.
“Digital assets have been pushed through the broader conditions to move away from risk-taking related to Omicron and expectations of a more aggressive Fed but did not sell properly until Friday, due to contagion from stocks,” said Martha Reyes, head of research at major digital assets. Bequant brokerage and exchange, he said in the comments via email.
This week, the CBOE Volatility Index (VIX) hit its highest level since January as investors held off on perceived risk, although Reyes expects the uncertainty to be short-lived.
“It is rare for VIX to see such significant rises and the market usually continues to generate positive returns over a period of one to six months, as panic and forced selling from OmniFed subside – as we saw last January,” Reyes added.
Others have discovered parallels with the pandemic market crash of March 2020 and the sell-off of stocks and cryptocurrencies this week – with the market quickly rebounding from panicked lows.
“The current situation is very similar to what happened in March 2020 where we are seeing stocks drop 5% from recent highs and negativity spread to other markets including digital asset markets,” said Anto Paroyan, chief operating officer, at crypto hedge fund Ark36, Via the email, he also noted the wild bitcoin price swings over the summer and “how much the market will bounce back after that.”
However, Paroyan warned that the bitcoin and cryptocurrency market could be headed for more pain in the coming weeks and months as volatility frightens traders.
“One of the major bull market indicators for bitcoin – the 20-week simple moving average – has now been decisively breached, so the outlook is currently bearish in the short to medium term. What is worrying in the short term is that the market still appears to be saturated with leverage. This creates the conditions in which the corrections we just saw are likely to repeat.”
The cryptocurrency market continues to be largely driven by bitcoin price movements, with bitcoin fortunes dictating the broader market. Bitcoin is the largest cryptocurrency by value, with a market capitalization of around $1 trillion. Ethereum, the second largest cryptocurrency, is worth about $500 billion and together they make up more than half of the $2.2 trillion crypto market.
However, the dominance of bitcoin, a measure of the value of bitcoin compared to the broader market, has declined over the past year as smaller coins make significant gains thanks to the non-fungible token craze (NFT) and a growing interest in decentralized finance (DeFi) — using cryptocurrencies as a technology to recreate services. traditional finance without the need for banks.
Ethereum, the largest NFT and DeFi platform – along with its main competitors BNB, solana and cardano from Binance – have added triple-digit ratios in recent months, and some investors are optimistic that they will continue to climb.
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“Smart investors — both individuals and institutions — know crypto is the future of money,” said Nigel Green, CEO of DeVere Group, a financial advisory and asset management team, in comments via email. “In times of volatility, where there are fewer entry points for wallets to fill, they usually continue to feed money into the digital asset market.”
Green expects Ethereum rival Solana, which is up nearly 10,000% since this time last year, to outperform both Bitcoin and Ethereum in 2022.
“[Solana is] likely to [to] Bitcoin and Ethereum will outperform again next year,” Green added, noting the “cost-efficiency” and “momentum driven by the burgeoning DeFi space as retail investors seek alternative funding opportunities and institutional investors continue to pile up.” “