The cryptocurrency market has taken a big hit over the past week. On Monday, January 25, Bitcoin
(BTC) dropped to €29,265, its lowest point since July 2021, but the No. 1 cryptocurrency has since recovered to €32,800. Ethereum
(ETH) dipped to a low of €1,930, which is also its lowest point since July 2021. ETH also made a recovery afterward, its price standing at €2,145 at the time of writing.
are moving in tandem with stocks, which have continued to fall since the beginning of the year and have just had their worst week since March 2020. Investors have been selling risky assets like technology stocks as they prepare for tighter monetary policy from the Federal Reserve.
There are fears among investors that the Fed will raise interest rates substantially in 2022, in response to the high inflation that is now occurring in the US. In general, high interest rates are a bad sign for investments, so they are already anticipating this by selling investments.
Furthermore, there is also some uncertainty regarding the situation between Russia and Ukraine. If war actually breaks out between the two countries, this could cause economic setbacks. Experts say that the reaction to this is also to sell investments.
Given the current market sentiment, Bitcoin is likely to test the €26,000 mark, according to several analysts. If the cryptocurrency holds above €26,000 for as long as a week, a base could be formed at that level before the market moves higher again. However, it may take some time for the market to turn bullish given the lack of confidence across the spectrum, also it is possible that prices could fall further if macroeconomic factors continue to deteriorate.
Investors are also struggling with rising inflation. Bitcoin proponents have long suggested that the digital currency is a hedge against inflation, but that theory does not hold up for many newer investors. The U.S. is currently experiencing its highest inflation in some 40 years, and Bitcoin has not risen proportionately with it over the past year.
Some analysts say there is even a chance that the Fed could take the wind out of the sails of the crypto market entirely:
"Looking ahead, our biggest concern is how the equity markets react to this week's Fed meeting, especially after they just endured their worst week since the global Covid began," says Leah Wald, CEO at digital asset investment manager Valkyrie Funds.
According to Wald, cryptocurrencies and stocks are highly correlated today and both the crypto market and the stock market will fall even further in the event of a bad outcome at the Fed meeting.