Volatility of cryptocurrency
Bitcoin is a risk asset and it’s known for its volatility.
January 2022 was a very bad month for Bitcoin (BTC). BTC’s price came down to almost USD 33000, which is over 20% lower than the start of the year. It has not been doing well since November 2021. January is expected to be a good month for BTC. In January 2021, it grew by over 21%. In the pandemic year 2020, BTC return was 300%, but it came down to 70% in 2021. Since January 20, BTC has not crossed USD 40000.
The downward trend is contributed by Federal Reserve Chairman Jerome Powell’s recent announcement. He has stated that there will be measures such as raising rates to control inflation.
Grant Maddox, a certified financial planner, has viewed that investors are avoiding risks at the moment. We may recall that BTC was at USD 61,720 on October 31, 2021, and it was USD 48473 on December 31.
There is a growing perception that covid-19 is set to end. Due to actions by many central banks, liquidity is drying up. Such factors are contributing to the risk-avoiding attitude of investors.
Based on recent trends, we can say that cryptocurrency is not a hedge against the equity market. The movement of crypto prices seems to be correlated to broad market movement. The tension between Russia and Ukraine seems to confirm the proposition.
Some experts believe that a 50 % fall in value for BTC is not abnormal. We must not forget that BTC was USD $8400 two years ago.
Carol Alexander, who teaches finance at Sussex University, anticipates that BTC may be down to USD 10000 in 2022.