Crypto Winter Is Coming
Bitcoin fell more than 10% over the past day trading at around $36.3K on the FTX exchange, causing the crypto market to be in a sea of red.
Despite the crypto market losing nearly $200 billion in market value since yesterday, Crypto Twitter is not losing its collective mind as Bitcoin’s dominance is at 40.84%, up 0.65% from yesterday.
Global investors seem to have entered the year with a reduced appetite for risk, and so the correlations between speculative assets like crypto-assets and equities have risen, which has resulted in widespread losses
Switzerland’s largest bank, UBS, has warned of a crypto winter where prices crash and may not recover for years. The bank’s analysts, led by James Malcolm, recently explained in a note to clients several reasons why cryptocurrency may lose its attractiveness to investors this year.
Firstly, the UBS analysts detailed that the Federal Reserve’s interest rate hikes are set to reduce the appeal of cryptocurrencies, such as bitcoin, for many investors who see the asset class as a good alternative store of value.
The analysts added that if central banks move to get a handle on inflation, investors may not be holding bitcoin as protection against rising prices. They noted that government stimulus was a key factor boosting the prices of cryptocurrencies in 2020 and 2021.
The Fed is expected to raise interest rates several times this year. JPMorgan CEO Jamie Dimon recently said that the Federal Reserve might have to raise short-term interest rates more than four times this year. Goldman Sachs similarly expects the Fed to raise interest rates four times this year. Wharton’s finance professor Jeremy Siegel said earlier this month, “The Fed is going to have to hike many more times than what the market expects.”
But many investors are less convinced, with regulation a particular worry. The central bank of Russia, a crypto hub, this week proposed an outright ban of mining and transactions, adding to Friday's sell-off. European regulators could be about to toughen up their rules, and Spain and the UK are cracking down on crypto adverts.