Behind Bitcoin’s Sudden Drop

Instead of treating bitcoin as “digital gold,” investors see cryptocurrencies as risky assets. This caused the price of Bitcoin to plummet in line with the stock market decline.

According to CoinMarketCap data as of Jan. 24 (Vietnamese time), Bitcoin — the world’s largest cryptocurrency — is trading $35,000/dong, down slightly by 0.46% compared to 24 hours ago. The currency has yet to bounce back up after several days of sharp declines.

On Jan. 21, bitcoin price plummeted from the daily high $43,300/dong further down $38,000/Copper. In the past few days, the market capitalization of Bitcoin has gradually lost its importance 800 billion dollars, 700 billion dollars then narrowed to 664 billion dollars.

More than in no time 1,000 yen billion dollars has vanished from the cryptocurrency market cap. The total market capitalization of cryptocurrencies is currently at 1,630 billion dollars. Ether — the second largest cryptocurrency in the world — has seen a 25.3% drop over the past 7 days.

Bitcoin price failed to regain momentum after several days of sharp declines. Photo: CoinMarketCap.

Financial expert Edward Moya of consultancy Oanda (based in London) tells us that the crypto market has been hit hard by stock market selling pressures.

“Wall Street is no longer debating whether to switch from tech stocks to cyclical stocks (stocks that move with trends in the overall economy). Instead, the market was massively sold out,” commented expert Moya.

According to him, Wall Street investors have two major concerns. “First, inflationary pressures are unlikely to abate anytime soon and it’s possible that the Federal Reserve (Fed) will become too aggressive in tightening monetary policy,” Mr Moya said.

Another concern is that earnings growth expectations appear to have gotten too high, prompting a sell-off. “Geopolitical risks are also contributing to the selling pressure,” Moya said.

Bitcoin price plummeted as investors removed risky assets like tech stocks and cryptocurrencies from their portfolios. Photo: Reuters.

“Bitcoin price plummeted as investors rushed to remove risky assets from their portfolios after stocks plummeted,” the Oanda expert explained. Therefore, instead of seeing Bitcoin as “digital gold,” traders view the coin as a risky asset.

“Crypto markets got a big shock this month,” said Jonathan Padilla, co-founder of Snickerdoodle Labs. Even Bitcoin’s notable supporters are beginning to worry.

Billionaire Mike Novogratz – famous cryptocurrency investor – admitted on Twitter: “This will be the time when people realize that the job of an investor is not easy.”

But, in his opinion, if prices drop sharply, investors will look for ways to “buy the bottom.” “They understand that crypto is not going away. So they need to buy it before the price goes up again,” Novogratz added.

Stock market volatility

The negative news constantly deals a heavy blow to cryptocurrencies. Regulators from Russia, UK, Singapore to Spain have all announced interventions that could hamper crypto businesses. The Fed’s tighter monetary policy plan also led to rate hikes this year.

The Bloomberg Galaxy DeFi Index — which tracks digital currencies related to decentralized finance – is down 14% over the past week.

Meanwhile, US President Joe Biden’s administration is preparing a grand strategy for digital assets. Washington has commissioned federal agencies to assess the risks and opportunities of cryptocurrencies. According to Bloomberg sources, the above information weighs on the price of cryptocurrencies.

According to Coinglass data, about 290,000 traders closed their positions in just 24 hours from the evening of Jan. 20 to Jan. 21.

“Investors will feel fear and uncertainty. If the stock market experiences a major selloff, the Fed could speak to calm the market. Then Bitcoin and other cryptocurrencies will be there. There is a possibility of another price increase,” commented Antoni Trenchev on Nexo.

“Right now, bitcoin is in danger after falling below the threshold $40,000/Copper. Bitcoin price movements are not reversing quickly. I do not rule out that the price of bitcoin will fall below the threshold $30,000/dong by Fed changes,” he warned.

“However, $30,000/dong will be the bottom at least in the medium term,” added Mr. Trenchev.

“When all risky assets are sold off, Bitcoin will see the same trend. If the Nasdaq 100 or something like that starts to rally, cryptocurrencies could rally as well,” said Mr. Art Hogan – Strategist at National Securities.

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