Vidya Ranathan, Medha Singh

(Reuters) – Cryptocurrencies are in for a tough ride over the next few weeks due to a weak start to 2022, as well as looming technical and macro headwinds.

Bitcoin, the largest of all, is currently down 12%. It hasn’t been able to surpass $50,000 since Dec. 4, when it crashed.

While bitcoin was not a hedge against inflation, or an uncorrelated alternative asset, it has been disproportionately affected. Bitcoin lost 40% at its peak in November as the Federal Reserve (and other central banks) announced plans for raising rates and removing monetary stimuli.

Jack McDonald, Chief Executive Officer of Standard Custody (a company that provides digital asset custody solutions to institutional investors), stated, “There is more correlation between the crypto sector, and the more conventional markets than some people may like.”

Justin D’Anethan from Hong Kong is a cryptocurrency analyst. He points out that the leverage ratio (which tracks open interest across crypto trading venues relative to bitcoin currency reserve) has grown despite the liquidation bitcoin holdings. This may indicate more short positions.

He observed that even though options were available, investors have favored “puts” over other alternatives.

CryptoQuant’s analytics platform shows that the ratio of bitcoin leverage across all exchanges rose to 0.22 from 0.15 months ago.

The market capitalization has fallen to $793 Billion, according crypto platform CoinGecko. The company has seen a drop of approximately $93 Billion since its inception.

Crypto data platform Coinglass’s bitcoin Fear & Greed index last week touched its lowest level since July 2021, when bitcoin prices were trading at $30,000. CryptoCompare reported that bitcoin futures prices on the CME experienced the largest monthly drop of 77.4% to $1.1 billion in December.

Research firm Macro Hive analysts Bilal Hafeez and Dalvir Mandara cited outflows of cryptocurrency-traded funds as well as the lower profitability of incoming Bitcoin, both reasons for being bearish.

They also pointed out that the slower growth of bitcoin open interest suggests hesitation by investors. A positive funding rate to perpetual futures is also a sign that traders still want to pay small amounts to maintain their bitcoin longs.

Although stocks that are linked to cryptocurrency fell in price broadly, some stocks saw gains when they launched new ventures or offerings.

Meme stock shares GameStop Corp (NYSE:) On Friday, the stock rose 7% due to plans for a division that will develop and market NFTs as well as establish partnerships in cryptocurrency.

BTCS, a Blockchain Infrastructure firm, surged by 44% in January 5th after announcing bitcoin dividends called bividends to all its shareholders.