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Cryptocurrencies Prices Plummet

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The world’s most heavily capitalised digital asset, Bitcoin, celebrated its 13th birthday last week, but the cryptocurrency market’s mood has been far from “celebratory,” despite all that Bitcoin has achieved since it was launched in 2009.   January 8th marked the seventh-straight day in a row that the digital asset’s value trended lower – Not since 2018 has there been such a steady decline.

Last year, while crypto-enthusiasts were applauding the digital assets market for finally achieving “mainstream adoption,” a crucial inflection point, other cryptocurrency analysts were trying to warn investors that the fever pitch and accelerated values may trigger a late year sell-off.  They were right. 

How did we get here?  As Bitcoin slips toward the psychological floor of $40K, crypto-investors are anxiously looking for any credible news or trends to suggest that the current market sell-off could finally be ending. 

Let’s all take a collective breath as we consider some important facts.

First, the month of January always seems to spook investors with sudden dips.  This historically creates a domino effect that chases the newer investors out of the market, and it appears that 2022 will be more of the same.  Yes, this sell-off has been especially disconcerting as Bitcoin has shed 10% of its value in the first ten days of 2022, but a closer look at the market players reveals some answers. 

If one considers the role the Federal Reserve has had to play in all this, especially their reaction to the pandemic, the sell-off becomes less of a mystery.  During the pandemic, the Fed was very lenient on the economy and even went so far as to inject over $4 trillion into the economy.  It was a move to support the global marketplace while the world’s employers struggled to find a way to stay in business with much of their workforce needing (or wanting) to work remotely.  Now, as the world’s economies begin to stabilize, the Fed is starting to give signals that it may be thinking about taking some new steps to minimize the rate of inflation - rates that are now at their highest level in forty years.

A simple review of the minutes from last week’s Federal Reserve meeting served to only further fan those flames.  Word began to spread across the media channels, and the rout was on. 

It’s also worth noting that most investors still categorize cryptocurrencies as “high risk” investments.  In so doing, the cryptocurrency market will continue to react with sell orders whenever the Fed hints at tempering the market like it did last week.  So, the big question becomes, especially for the investors who piled into the market late last year, when does this carnage end? 

As of this weekend, Bitcoin was down 35% from the all-time high, but some influential players are sensing better days are ahead.  Are they correct?  The price of Bitcoin is continuing to edge closer to the $39,570 mark.  That’s approximately where Bitcoin’s price hit a floor in September 2021, before going on an upward tear.

In fact, a strategist from Bloomberg made comments earlier suggesting that Bitcoin could outperform traditional stocks in 2022, especially if any moves are made by the Fed to raise interest rates.  The strategist stated: “Cryptos are tops among the risky and speculative. If risk assets decline, it helps the Fed’s inflation fight. Becoming a global reserve asset, Bitcoin may be a primary beneficiary in that scenario.”

Remember, the technology behind these digital assets is still very new to the mainstream public, and there was a lot of FOMO activity that took place in late 2021.  As the market cools, it is establishing a new baseline.  We’ve been here before.

Is it time to pick up some bargains?

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