Bitcoin gets a blow this week as the Federal Reserve prepares for a stimulus removal, but bulls feel as brave as ever.
The largest cryptocurrency measured in market value has lost about $ 80 billion since the beginning of the year in the midst of a recession that has brought it to its lowest levels since its lightning crash in early December. But there have been predictions that it may still reach the infamous $ 100,000 level at some point this year.
It would need to more than double from the current level of around $ 42,900 to reach that milestone. Analysts say it is not that it can not – it has yielded plenty of triple-digit annual returns over the past decade – but that the way forward may be harder for cryptocurrencies with a more hawkish Fed.
“Cryptocurrencies have benefited from the Fed’s massive liquidity injections since 2020,” said Matt Maley, chief marketing strategist for Miller Tobacco + Co. “It pushed those assets too far, too fast.”
Along with more risky assets like U.S. equities, Bitcoin and other digital assets fell on Wednesday after minutes from a recent Fed meeting showed that officials were willing to withdraw the stimulus faster than many had previously expected.
The announcement pointed to earlier and faster rate hikes by the central bank, which would increase the cost of capital across the economy. It has the potential to keep investors away from cryptocurrencies, many of which have yielded huge gains over the past two years amid increased stimulus.
But not everyone agrees that this environment is lousy for crypto. Bitcoin is a risk asset that is evolving into a digital reserve asset in a world that goes that route – and it has positive consequences for the price, according to Bloomberg Intelligence’s Mike McGlone.
The coin is “heading towards $ 100,000,” he wrote in a note. “Cryptocurrencies are top among the risky and speculative. If risk assets fall, it will help the Fed fight inflation. By becoming a global reserve asset, Bitcoin could be a primary beneficiary in that scenario.”
Still, it has not stopped other industry participants, such as Messari Inc. co-founder Ryan Selkis, from making fun of some of the soaring predictions.
My price targets for BTC and ETH are $ 100k and $ 10ki in May.
I reached these goals by looking at the charts yesterday and writing down the numbers that I wanted the markets to reach by spring.
– Ryan Selkis @ 🖊🔑 (@twobitidiot) January 6, 2022
And earlier this week, Goldman Sachs analyst Zach Pandl wrote that Bitcoin could hit $ 100,000 if it continues to take market share from gold.
Bitcoin has recently sung the tune of the stock market, where the 100-day correlation coefficient for the coin and the S&P 500 now stands at 0.44. It is the highest reading of this type since the fourth quarter of 2020. A coefficient of 1 means that the assets are moving in locking steps, while minus-1 shows that they are moving in opposite directions.
“Now that this stimulus is becoming less abundantly faster than the markets had intended, it makes sense that these assets are declining in pace,” Maley said.
Lindsey Bell, chief market and money strategist at Ally, says investors were already nervous about entering the year thanks to uncertainty about the Fed’s political path.
“People are reassessing the risk they want to take,” she said over the phone. It does not help that the dollar has also strengthened, which serves as a reminder to crypto investors that it “is still the world currency and it is still very strong and it is going nowhere and so you do not have to hide your money under your mattress or in cryptocurrencies. “
Greg Bassuk, CEO of AXS Investments, an asset manager focusing on alternative investments, says Bitcoin should be part of an investor’s portfolio.
“We are very positive about Bitcoin and digital assets, cutting through all the noise from day to day,” he said in an interview. “Digital assets will be treated in the longer term as commodities, stocks and bonds and real estate and other more traditional asset classes in the coming years.”
– With assistance from Lu Wang.