By default, investors are drawn to anything they can flock to as a hedge against high inflation, primarily to preserve their wealth as it reached new highs.
Crypto proponents frequently claim that since bitcoin is decentralized, has a fixed supply and cannot be shut down, they are immune to the incompetence of central bankers and governments and thus can be used to hedge against fiat currencies.
Bitcoin has closely followed the performance of the American stock market, which boomed considerably when the economy was well stimulated to encourage spending. However, this is all changing as the U.S. Fed comes to an agreement on containing the four-decade-high inflation rate.
In spite of ongoing worries about a more significant shakeout in the crypto market, the flagship crypto traded once more around the $20k barrier, underperforming global equities markets in the short run.
As investor interest in risky assets waned due to mounting concerns about an economic slowdown, the crypto market had been trending in the same direction as stocks for months.
Without a doubt, 2022 has been a difficult year for crypto assets: as central banks around the world tighten monetary policy to fight excessive inflation rates, Bitcoin is down more than 75% from its peak, and digital assets have lost more than $2 trillion from its peak.
After U.S Federal Chief Jerome Powell admitted the possibility of a recession, U.S Treasury assets held a gain as crypto investors analysed its implication.
The U.S central bank had earlier raised interest rates by 75 basis points and started to reduce its balance sheet estimated to be worth $9 trillion. The conditions are ideal for another massive crypto dump as liquidity tightens considerably.
Former BitMEX CEO, Arthur Hayes further revealed the “pockets of forced selling” of Bitcoin (and Ethereum could soon cause the crypto market to decline once more. Powell “has acknowledged that rates will continue to increase, but the FOMC committee is cognizant of watching incoming data, suggesting the Fed will not be exclusively on autopilot with tightening.
Hayes points out that, a whopping 24,500 Bitcoin were sold off by Canada’s Purpose BTC exchange-traded fund (ETF).
At the time of writing, the price of one bitcoin is $20.2K. After sellers dumped their positions, the market immediately recovered on light volume, according to Hayes.
“Expect more pockets of forced selling of BTC and ETH as the market determines who is swimming naked given the terrible state of risk management by cryptocurrency lenders and excessively lenient lending terms,” Hayes added.
When will it end? I’m not sure. However, there might still be opportunities for those knowledgeable knife catchers to purchase coins from people who must reject any and all bids.
In a recent blog post, Hayes stated that he is anticipating a weekend when panicked sellers flood a bid-less market, leading to the capitulation of crypto assets.
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