Bitcoin price nosedives after Fed suggests interest rate hikes by end of Q1 2022
After having maintained interest levels at near-zero levels since March 2020, the Federal Reserve plans on upping these rates soon.
- Experts believe Bitcoin could find its bottom around the AUD$53k – $55k region.
- Since November 2021, the total market capitalisation of the crypto sector has dipped from AUD$4 trillion to AUD$3 trillion.
- The S&P 500 is currently witnessing its highest levels of "overextension" in almost 2 decades, suggesting more investors may turn towards crypto in the near term.
In a dramatic move, Bitcoin, the world's largest cryptocurrency by total market capitalisation, proceeded to plunge by a whopping 7% within a period of just 24 hours between 6–7 January, dipping from AUD$65,000 to under $60,000. As a result, the digital asset is now exhibiting fortnightly losses in excess of 15%. At press time, BTC is trading at a price point of AUD$59,820.
The flagship crypto's ongoing woes may not be over just yet. BTC's above-stated price drop recently sent the Crypto Fear and Greed index — a popular metric that many pundits use to gauge market sentiment — down to the "extreme fear" region. The fallout seems to have emanated in large part after the Federal Reserve recently hinted that it may be looking to raise interest rates over the next couple of months.
When asked about Bitcoin's near-term future, Mike Novogratz, popular crypto analyst and CEO of Galaxy Digital Holdings, was quoted saying that in spite of the prevailing bearish sentiment, institutional demand for BTC has been "soaring on the sidelines". And, while the buying climate may remain volatile over the coming few weeks, Novogratz is confident that Bitcoin will find its eventual bottom somewhere around the US38,000 – $40,000 mark.
The recent price swings have seen the total market capitalisation of the crypto sector drop to AUD$3 trillion. However, in an unusual turn of events, Bitcoin's market dominance has once again risen from 37% to nearly 40%.
Bitcoin on track to outperform the stock market?
In light of the Fed's upcoming monetary tightening, Bloomberg's chief commodity strategist Mike McGlone recently opined that March's proposed interest rate hike stands to serve as a "win-win" for Bitcoin against the stock market.
This is because the S&P 500 Index is currently at its most overextended, hovering at its highest 60-month moving average in over 2 decades. As a result, more and more investors view Bitcoin as a hedge against inflation. He added:
"Stretched markets have become common, but commodities and Bitcoin appear to be early reversion leaders. It's a question of bull-market duration, and we see the benchmark crypto coming out ahead."
New York City mayor asks people to "buy the dip"
Recently elected New York City mayor Eric Adams made a television appearance a few days back urging investors to accrue Bitcoin following the asset's plunge to below the US$43,000 mark. "We need to use the technology of blockchain, Bitcoin, of all other forms of technology. I want New York City to be the center of that technology," he said.
Adams has been a vocal crypto proponent for some time now and has vowed to take his first 3 paychecks as NYC mayor in BTC.
Disclosure: The author owns a range of cryptocurrencies at the time of writing.