Crypto investors buy the dip as Bitcoin falls below $40,000
New York (Jan 11) Bitcoin is not having a good year so far. After unprecedented moves in 2021, the leading digital currency is seeing the worst start to the new year in its relatively short history.
Monday, Bitcoin dropped below $40,000 an ounce, falling to its lowest level since early August. Although the digital currency has regained, it is still seeing some heavy losses in the first week of 2022. Bitcoin is down nearly 13%, last trading around $41,000 per token.
Bitcoin prices are down more than 40% since reaching an all-time high of $69,000 in early November.
According to some crypto analysts, the market is suffering as investors expect that rising inflation pressures will force the Federal Reserve to raise interest rates more aggressively than initially anticipated. Investors are lightening up on volatile investments as market liquidity is expected to dry up due to tighter U.S. monetary policy.
"Bitcoin and Ethereum got knocked down early as Treasury yields surged as expectations remain strong that inflation will not ease anytime soon, prompting the Fed to deliver more than a few rate hikes this year," said Edward Moya, senior market analyst at OANDA.
Currently, markets are pricing in four rate hikes this year, with the Fed making its first move as early as March. Some economists are also expecting that the U.S. central bank could even start to reduce its massive balance sheet before the end of the year.
Although some digital currency investors are buying Bitcoin's latest dip, some analysts are looking for prices to consolidate around current levels in the near-term.
However, there is still a lot of optimism that bitcoin's long-term potential remains firmly in place.
"Short-term volatility will remain elevated for Bitcoin and Ethereum, but for long-term hodlers, the outlook still looks bright," said Moya.
In a recent report, Mike McGlone, senior commodity strategist at Bloomberg Intelligence, said that he could see the potential for Bitcoin to test long-term support at $30,000 an ounce. However, he added that the likely scenario is for prices to push higher.
"A risk-off swoon like that of 2020 may put those key supports in play but is unlikely. What'sWhat's more probable, we think, is Bitcoin heading toward $100,000 and Ethereum breaching $5,000 resistance. A key issue we see is the Federal Reserve, as it faces the greatest inflation in four decades, more inclined to raise interest rates if risk assets continue climbing," he said. "We see the Bloomberg Galaxy Crypto Index marching higher in 2022, but among the riskiest of assets, cryptos must manage Federal Reserve tightening."
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