Risk sentiment returns to financial markets as a consequence of the omicron variant and this is noticeable in the price of cryptocurrencies.
Bitcoin, which had lost 30 percent of its value from November highs to around $ 46,000, is rising but far from highs.
Specifically, on Tuesday rebounded 4.26 percent and exceeded $ 48,000.
Still, this rally in the world’s most traded cryptocurrency falls far short of the highs recorded above $ 69 billion in late October and early November.
Afterwards, bitcoin prolonged its five-week slide coinciding with a rejection of risk assets in global markets.
Although there was talk that bitcoin could hedge in an inflationary environment, opinions also emerged, as explained by Chris Matta, president of 3iQ Digital Assets, that “maybe bitcoin correlates a little more with traditional assets” .
The role of central banks and the emergence of omicron
The price of bitcoin and the rest of crypto assets was affected, first, by skyrocketing inflation. Central banks globally are prioritizing fighting high inflation by tightening monetary expansion.
The liquidity that flooded the financial markets is gradually shrinking. First it was the Federal Reserve and then the European Central Bank (ECB) that announced that it would end the Pandemic Purchase Program (PEPP).
In that sense, Jay Hatfield, CEO and founder of Infrastructure Capital Management, confirms that “when there is a lack of liquidity, the riskiest assets are the most affected.” And the world of cryptocurrencies is no exception.
Second, the new variant of coronavirus, omicron, has not favored the price of digital currencies either, which has caused an increase in risk aversion on the part of investors.
Bitcoin is also facing some price levels where technical analysis looks for signs of future direction.
The digital currency is at its 55-week simple moving average. Usually the token has bounced the most in the past when it reached that level.
Katie Stockton, founder of Fairlead Strategies, is considering $ 44,200 as a support level for the cryptocurrency. If it breaks, “it will probably test significant long-term support near $ 37,000,” he says.
The year of bitcoin
The truth is that, despite this 30 percent drop, bitcoin this year broke its previous all-time high and added approximately $ 545 billion to its market capitalization.
Crypto assets hit new highs.
Total crypto market capitalization hit a record $ 3 trillion after crossing 1 trillion again in January and 2 trillion in May, according to research by The Block.o in recent weeks.
And this year has been the year of bitcoin.
Its price suffered ups and downs due to different events. For one thing, Elon Musk’s $ 1.5 billion investment earlier in the year was the largest by a mainstream corporation in the most popular cryptocurrency on the market.
To this must be added the appearance of the first ETFs on bitcoin futures, which also positively influenced its price.
But he had to deal with China, which declared them illegal and advised against using them.
The country’s authorities believe that cryptocurrencies disrupt the economic order and facilitate illegal asset transfers and money laundering.
Authorities also blame cryptocurrency miners for wasting energy and see it as a potential threat to the country’s efforts to reduce carbon emissions.
China aims to become carbon neutral by 2060.
Bitcoin at $ 100,000?
The current level of bitcoin makes it difficult to fulfill the predictions that it could reach $ 100,000 in the first quarter of 2023, as advanced by the managers of Fidelity.
The chances of doing this are unclear, but Twitter founder Jack Dorsey has predicted that bitcoin will replace the US dollar, although he recently dismissed much of the mystique surrounding cryptocurrency and blockchain technology.
Dorsey previously suggested that bitcoin will become a global currency for the internet, but fell short of predicting that it will replace the major existing currencies.