Six months ago the bitcoin, the best-known cryptocurrency in the market, reached its intraday all-time highs at $68,991, but has since fallen by almost 50% in a context of tightening of monetary policies to combat high inflation.
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According to market data consulted by Efe, bitcoin fell 49.92% this Sunday at 10:30 a.m. GMT from its maximum recorded on November 10, 2021, to $34,550. Since the beginning of the year this cryptocurrency has experienced a downtrend, with a decrease of 25.4% (it closed 2021 at 46,333.65 dollars), in a few months that have been conditioned by geopolitical tensions derived from the Russian invasion of Ukraine and high inflation.
As a consequence, the central banks have changed their monetary policies, which have become more aggressive in the case of the US Federal Reserve (Fed), which has already made two interest rate hikes, the last one last Thursday with an increase of half a point, and more lax in the case of the European Central Bank (ECB) which, although at the moment it has not set a date for rate increases, has toughened its speech and commented that it will begin to withdraw the stimuli enabled by the pandemic.
The director of Coinmotion for Spain, Raúl López, has considered that the Fed’s announcement about the increase in its rates put the markets on alert and “possibly” led to the loss of value of cryptocurrencies. With the Fed’s first rate hike this year, which took place on March 16, Bitcoin fell back slightly, but reached a high of $47,967 by the end of the month.
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However, when on April 6 the minutes of this organization anticipated a possible more aggressive rise of half a point, this digital currency fell by 4.32%. Last Wednesday, the Fed applied its second increase and since then the most popular cryptocurrency has lost a little more than 13%. That day it closed at $39,800. According to analysts consulted by Efe, the loss of value of bitcoin and its extreme volatility in recent months has responded to various factors, in addition to the hardening of the central banks’ discourse.
Raúl López explained that the geopolitical tensions, such as the war in Ukraine, and health risks, such as the appearance of the omicron variant of coronavirus at the end of November 2021, have influenced its price. He has also argued that the European Commission’s MiCA proposal to regulate the cryptocurrency market generated “some fear in the markets.”
HISTORICAL HIGHS OF BITCOIN
Since the end of 2020, the price of bitcoin has experienced an upward trend and soared from $10,000 to over $60,000 in the second quarter of 2021. Although it subsequently had a small correction, at the end of the year it recorded its all-time highs that were close to $69,000 .
This growth in the price of bitcoin was motivated by various issues, such as its adoption as legal tender in El Salvador or China’s ban on mining and exchanging cryptocurrencieswhich for Bit2Me’s director of institutional relations, Javier Pastor, could have had an impact on speculators.
In addition, López recalls that inflation fueled the “greatest bullish rally in the history of bitcoin”, as investors were looking for a condition to “make their capital profitable”. Throughout the year, bitcoin has registered enormous volatility, however, some analysts suggest that this cryptocurrency is a refuge value because, as Javier Pastor recalls, “it is scarce and finite in its issuance.” “It is true that it is volatile, but it is because the total capitalization of its market is still low,” says Pastor.
After the outbreak of the Covid-19 pandemic, the cryptocurrency market recovered much faster than the traditional market, which according to López, “was a sign at the time that cryptocurrencies could be a refuge value.”
The IG analyst Diego Morín has recalled that bitcoin is an “alternative investment” that attracts younger investors who seek to obtain a “higher return than what has normally been developed and conquered in the traditional market”, but also warns about its high volatility “On the same day we can see rises of more than 5% or corrections of more than 10%, so this must also be taken into account,” says Morín.
FUTURE OF THE CRYPTOCURRENCY MARKET
The Fed is expected to continue tightening its monetary policies this year so, according to Raúl López, the markets will evolve depending on whether the measures adopted by these organizations are those expected by the governments, which “in part could also influence the evolution of the price, not only of bitcoin but of other cryptocurrencies”.
For his part, Diego Morín has warned that in 2017, with the previous cycle of increasing the Fed’s rates, the first “sudden” upward movement of this digital currency began and, therefore, he has assured that he does not rule out that in the next few months “there will be some bullish rally again in the case of bitcoin”.