Cryptos crash up to 30% amid U.S. Fed blues

By January 13, 2022The Sandbox
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Cryptos crash up to 30% amid U.S. Fed blues
Fed's rate hike and quantitative tightening plans have prompted investors to dump high risk assets such as cryptos.

Around 38 of the top 50 cryptos are trading in the red since the beginning of the year, having lost anywhere between 4% to over 30% of their value, following a hawkish policy stance taken by the U.S. Federal Reserve.

At its current level of over $42,000, Bitcoin has fallen 12% since the start of the year. The crypto heavyweight, for the first time since September 2021, had fallen below $40,000 on January 10. Gala has been the worst performer at 31%, followed by Axie Infinity, The Sandbox and the Avalanche. The overall crypto market has corrected around 33% from its November 10 all-time high of a little over $3 trillion.

In wake of the pandemic, the world's four major central banks had expanded their QE programs (bond buying) by a cumulative $9.1 trillion, taking their combined balance sheet size to over $27 trillion, that is equivalent to a third of the global GDP. With that kind of inflows, despite their volatility, investors rushed to high yield assets such as cyrptos, which offered much higher returns.

However, at the end of 2021, the Fed revealed that it will consider only three interest rate hikes this year, but there is growing perception on the Street that a fourth rate hike is possible, given the inflation in the U.S. has hit a 39-year high. In addition, the Fed is also embarking on a quantitative tightening, prompting investors to dump high risk assets such as cryptos.

Nigel Green, chief executive and founder of deVere Group, says: “The minutes from the Fed have increased expectations that the central bank will now move faster to raise interest rates to fight soaring inflation. As a result, there’s been a knee-jerk sell-off on Wall Street and the crypto market as it is perceived by some traders that such a move puts at risk the liquidity that has benefitted many asset classes, including Bitcoin.”

While Bitcoin has corrected from its all-time high of nearly $70,000 in November, Green is bullish on the outlook: “I’m using the lower prices of Bitcoin and other major cryptocurrencies to top-up my portfolio as in our increasingly tech-driven, globalised world, it makes sense to hold digital, borderless, decentralised currencies. In addition, adoption and demand are increasing all the time, whilst at the same time, supply is decreasing.”

Marc P Bernegger, a crypto expert and an advisor to Switzerland's government, believes the correction won’t last long. “It is typical for all-time price highs to be followed by a significant price correction, as investors take some profits from the table. $40,000 remains a key level of support for bitcoin, having proved its importance throughout last year.”

Currently, of the top 50, only six cryptos are in the green, with Internet Computer gaining the maximum of 40% since the beginning of the year to $35 level, followed by Chainlink, Graph and Near rising 33%, 21% and 7%, respectively.

The "crypto fear and greed index," published by Alternative.me, shows a reading of 22, which reveals "Extreme Fear". However, Bernegger believes this is the time to be buying as he believes the Bitcoin is going to hit an all-time high. “I definitely see $100,000 as the next big milestone in sight. There is still a huge number of first time Bitcoin investors joining the space and 2022 will further attract institutional investors moving into digital assets,” says the expert.

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