Cryptocurrency investors fear the worst as bitcoin falls 50%

Published On: January 26, 2022Categories: Alternative Investments2 min read

Bitcoin briefly plunged below $33,000 on Monday to its lowest level since July

As cryptocurrency investors reel from the sharp sell-off in bitcoin and other digital currencies, some fear the worst is yet to come.

Bitcoin, the world’s largest virtual currency, briefly plunged below $33,000 on Monday to its lowest level since July. It’s since recovered back above the $36,000 mark, but is still down almost 50% from a record high of nearly $69,000 in November.

Meanwhile, the entire crypto market has shed more than $1 trillion in value since bitcoin’s all-time high, as top tokens such as ether and solana followed the No. 1 digital currency to trade sharply lower. Ether has more than halved in value since reaching its peak in November, while solana has suffered an even steeper decline, falling 65%.

That’s got some crypto investors talking about the possibility of a ‘crypto winter,’ a phrase referring to major bear markets in the young digital currency market’s history. The most recent such occurrence happened in late 2017 and early 2018, when bitcoin crashed as much as 80% from all-time highs.

David Marcus, the former head of crypto at Facebook-parent Meta, appeared to admit a crypto winter has already arrived. In a tweet Monday, he said: It’s during crypto winters that the best entrepreneurs build the better companies. This is the time again to focus on solving real problems vs. pumping tokens.

Nadya Ivanova, chief operating officer at the BNP Paribas-affiliated tech research firm L’Atelier, said she’s not convinced a crypto winter has arrived yet — but the market is ‘now in a cooling off period.’ That might not be so bad, she says.

Crypto’s rout has come in tandem with a slide in global stocks. Experts say that involvement from large institutional funds has meant digital assets are becoming more intertwined with traditional markets.

The S&P 500 has fallen 8% since the start of the year, while the tech-heavy Nasdaq index is down over 12%. And the correlation between bitcoin’s performance and that of the S&P 500 has been on the rise lately.

Traders fear potential interest rate hikes and aggressive monetary tightening from the Federal Reserve will drain liquidity from the market. The U.S. central bank is considering making such moves in response to surging inflation, and some analysts say it could result in the end of the era of ultra-cheap money and sky-high valuations — especially in high-growth sectors like tech, which benefits from lower rates since companies often borrow funds to invest in their business.

I think it’s related to the rout and withdrawal from risky assets overall, Ivanova said of bitcoin’s recent decline.

About the Author: Jonathan Adams

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