Bitcoin has been incurring heavy dips as of late. Just a few months ago, the world’s number one digital currency by market cap was trading for a whopping $68,000 per unit, but now, the asset has lost nearly $30,000 from its price, and according to many analysts, the year is going to get a lot worse for the currency given that the Federal Reserve is looking to hike rates again.
The Federal Reserve Is Pushing Rates Higher
This would normally not be a huge deal. Rates change with the Federal Reserve all the time, and investors have somewhat gotten used to this. However, what’s significant about the situation is that the Fed is now looking to hike rates a minimum of five times throughout 2022. This is a big blow to homeowners and other people looking to take out loans, and it’s likely to bear heavy burdens for those with life-changing plans in 2022.
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The fact is that rate hikes affect bitcoin, but they also affect the economy – especially now that COVID precautions are slated to end in the coming months. With the pandemic easing, it appears the Federal Reserve is taking back a lot of the protective measures that they implemented throughout 2020 and 2021, but these tactics were initially slated to remain in place for at least another year. It was believed that rates would remain as they were through 2023, so this comes as a major (and early) hit.
The announcement has caused several dips in investment tools. Tech stocks, for example, have dropped dramatically in recent days, and the Nasdaq is presently down by roughly 13 percent. Overall, bitcoin has suffered the most, having lost 25 percent of its value in about ten weeks.
Sean Farrell – head of crypto at Fundstrat – explained in an interview:
Markets may have fully priced in these expectations, and market conditions may be pointing towards a favorable move after the meeting.
One of the big reasons rates appear to be growing is because inflation has gotten so bad. Price jumps in consumer goods are now at a 40-year high, and the Fed believes that ending its bond purchasing – which has led to the rate hikes – might do the trick and keep the economy protected.
Peter Cecchini – Axonic Capital’s director of research – is confident that bitcoin is going to have a long period of suffering throughout 2022. He says:
The massive amount of savings created by working-from-home stimulus found its way into the most speculative of risk assets including meme stocks and bitcoin. Both of those have taken considerable breathers, and we believe it will only get worse as margin leverage begins to evaporate on higher financing costs.
How Bad Will Things Be?
Strategist at Barclays Emmanuel Cau also mentioned:
Liquidity will be less than it has been for the past two years.