John McCrank

NEW YORK, (Reuters) – Investors fear more volatility in Bitcoin and other cryptocurrencies as fears over a hawkish Federal Reserve could stifle risk appetite across the markets.

In recent weeks, cryptocurrencies have displayed the usual volatility. , the largest cryptocurrency, is up by around 33% since Jan. 24 and recently traded at $43,850, rebounding from a tumble that cut its price in half from November’s record high. Its major rival, ether is up about 45% at approximately $3,200 since Jan. 24, following a near 56% plunge from the record $4,868 high in November.

Bitcoin and the other cryptocurrencies have seen huge gains. While the original proponents claimed they were not related to other assets at all, the bitcoin community saw significant growth over the last 2 years. It rallied along with stock markets as central banks and the Fed pumped unimaginable amounts of stimulus money into the global economy. Bitcoin has increased 1,039% and ether by 2,940% since March 2020, but both currencies have seen a series of stomach-churning selloffs that have halted their gains.

They have been volatile in recent months amid market selling driven by investors revising their portfolios to adjust for Fed’s aggressiveness. The Fed expects to raise rates seven times this year, as part of its fight against rising inflation. While the benchmark has fallen 5.5%, the tech-heavy Nasdaq is up 9.3%.

Some traders have been unable to keep their bullish view on cryptos and bitcoin because they fear that an aggressive central banking tightening cycle will harm risky assets. This has led them to be concerned about whether the asset class, which is already associated with extreme volatility, would become more volatile in the future.

According to Ed Moya (Oanda senior analyst), Bitcoin “really has become the ultimate momentum trading and there are so much risks that could trigger a 40% fall out of nowhere.”

Bitcoin’s volatility hasn’t stopped some analysts from trying to gauge the currency’s fair value or point out potentially important price levels.

Analysts at JPMorgan (NYSE:) estimate bitcoin’s current fair value at around $38,000 – some 15% below its recent price – based on its volatility in comparison with that of gold, another asset investors often use to hedge their portfolios against inflation and economic uncertainty.

According to Vanda Research (NASDAQ:), Research in a new note, most bearish bets regarding a lower Bitcoin price were placed around $47,000 and that “there could have been a large short squeeze if the threshold is crossed and retail investors turn back to crypto-trading.”

Meanwhile, correlations between bitcoin and the S&P 500 reached an all-time high on Jan 31, according to data from BofA Global Research, undercutting the case for those hoping to use the cryptocurrency as a hedge against market turbulence.

Investors next week are expecting minutes from the Fed’s most recent monetary policy meeting, due out Wednesday. As corporate earnings season continues, Walmart (NYSE:) as well as chipmaker Nvidia Corp (NASDAQ:) Corp are expected to report results.

Some bitcoin investors have made a plan to weather the volatility. They believe that blockchain technology’s long-term benefit proposition, built-in supply limits, and network effects will continue to be able to outperform the price fluctuations.

Jurrien Timmer is Fidelity’s director for global macro. He likens the current speculation on cryptocurrencies to the turmoil tech stocks faced during the dotcom boom more than 20 years ago. This was a period of boom and bust that left a relatively small number of companies standing.

He stated that Amazon (NASDAQ) and Apple (NASDAQ) are still relevant and that they have a greater market share than ever. “The thinking is that bitcoin will follow the same path.” But it is not immune from those waves of speculation or sentiment.”

Timmer believes that Bitcoin might reach $100,000 in 2023 based upon his supply-demand models.

Some believe that mature cryptocurrency like Bitcoin and Ethereum will not deliver the same eye-watering results they did when they were founded.

They are instead looking at the new universe of alternative coins being made to benefit from the $30 billion in venture capital investments into cryptospace last year.

Cosmos, Luna, & – Some altcoins are falling around 20.5%-38%, 25.5% and 25.75% respectively year-to date according to coinmarketcap.com.

Investors in 2022 will have to understand the risks and how decentralized finance works, says Lily Francus. Lily Francus is director of quantitative research strategy for Moody’s Analytics.

According to Oanda’s Moya, cryptocurrencies will “remain very volatile going forward”, but there are important players both on the institutional and retail sides that are still growing so the interest in them is still growing.”