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.

Recent weeks have seen the volatility associated with cryptocurrency has come to full show. , 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 closest rival, ether is currently up at about 45%, trading around $3,200 since Jan. 24, following a near 56% plunge from the record $4,868, set in November.

Bitcoin and the other cryptocurrencies have seen huge gains. While the original proponents claimed they were not related to any assets, the bitcoin community saw significant growth over the past 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.

Their recent volatility has come amid a broader market selloff driven by investors recalibrating https://www.reuters.com/business/investors-gird-more-hawkish-fed-after-sharp-inflation-rise-2022-02-10 their portfolios to account for a more aggressive Fed, which is now expected to raise rates as many as seven times https://www.reuters.com/markets/europe/goldman-ups-fed-hike-forecast-7-rate-increases-2022-after-cpi-data-2022-02-11 this year as it fights surging inflation. The benchmark has dropped 5.5% over the past year, and tech-based Nasdaq is down 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.

Investors said that escalating tensions in Ukraine could cause broad market movements as Washington has warned of a Russian invasion.

According to Ed Moya (Oanda senior analyst), Bitcoin “has really become the ultimate momentum trading and there are so much risks that could trigger a 40% drop from 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. Walmart (NYSE) and Nvidia (NASDAQ) Corp will report their results as the corporate earnings season progresses.

Some investors will be willing to endure the volatility of bitcoin.

Jurrien Turner, Fidelity director of global macro, said that the current speculation about cryptocurrencies is similar to the volatility tech stocks felt during the dot-com bubble more than twenty years ago. It was a boom-and bust period with a relatively few companies remaining.

He said that Amazon (NASDAQ.) was still there and Apple is still here and are bigger than ever. The thinking is for bitcoin to be the same.” But it is not immune from those waves of speculation or sentiment.

Based on Timmer’s supply-demand models, Bitcoin may reach $100,000 by 2023.

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

Instead, they are looking to the universe of new, alternative coins https://www.reuters.com/markets/europe/cryptoverse-after-bitcoin-winter-investors-hunt-risk-virtual-worlds-2022-02-08 that are being created to take advantage of the money pouring into the crypto space, including the metaverse and NFTs, which saw $30 billion worth of venture capital investment last year, according to PitchBook.

Cosmos, Luna and are some examples of altcoins. They have fallen around 20%, 38%, and 25% year-to-date according to coinmarketcap.com.

Understanding the risks linked to them https://www.moodysanalytics.com/articles/2021/block_by_block_assessing_risk_in_decentralized_finance and decentralized finance is going to be one of the main challenges for investors in 2022, said Lily Francus, director of quantitative research strategy at Moody’s (NYSE:) Analytics.

Oanda’s Moya stated that cryptocurrencies will continue to be volatile, however, there are many players on both the retail and institutional sides of the market. Therefore, the interest continues to grow.