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Bitcoin falls to $41k as investor sentiment sours

By Robert Davis

17:24, 7 January 2022

Bitcoin gold coin and defocused chart background.
Bitcoin falls to $41k as investor sentiment sours – Photo: Shutterstock

The cryptocurrency markets continued their slide on Friday as experts say investor sentiment is becoming increasingly sour.

Bitcoin was trading at just over $41,000 per unit by 17:00 UTC, representing a loss of nearly 3% over the last 24 hours.

Other popular assets like terra and solana saw even steeper declines, falling by 7.8% and 7.4% respectively. Terra was trading at $70.63 per unit while solana was trading at $138.83.

The overall downward turn for the market has erased more than $300bn (£221.02bn) from the total market capitalisation over the last few days, bringing the total down to $1.9trn, according to data from CoinMarketCap.

Investor sentiment

The recent dip in the markets has caused a liquidation of more than $850m over the last 18 hours, according to a note published by analyst Joo Kian at Delphi Digital.

The liquidation also caused the bitcoin Fear & Greed Index, which is used to track investor sentiment, to reach its lowest point since last summer, when bitcoin dropped down to $30,000 per unit.

Based on the data, Kian said many investors tried to gauge when a price rebound would occur, and as he puts it, “got burned in the process”.

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Divergence of fundamentals and prices

Another reason why the markets have made a recent about-face is that crypto prices are currently diverging from their economic fundamentals, said Matt Hougan, the chief investment officer at Bitwise, in an email to Capital.com.

“The fundamentals of crypto are stronger than ever, even as prices are wobbly,” Hougan said, pointing to the increasing institutional inflows, record developer activity on certain networks, and record venture capital in the space to make his point.

The latest digital asset fund flows report from CoinShares shows that total inflows reached $9.3bn last year, a 36% increase over 2020.

Meanwhile, crypto analytics firm Santiment published a report last week showing that the Cardano blockchain recorded the most developer activity in 2021. The report said that such activity is an “under-rated indicator of project success” because the blockchain is informed by scholarly academic research.

XRP/USD

0.61 Price
+4.820% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168

SOL/USD

170.33 Price
+0.010% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 2.2652

ETH/USD

3,501.03 Price
-0.230% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00

DOGE/USD

0.13 Price
+3.580% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.0012872

Hawkish Fed

Hougan also points to the US Federal Reserve Bank’s hawkish posture against inflation as another cause of the crypto market's recent downturn. 

Earlier this week, the Federal Open Markets Committee, which oversees the US open markets and includes members of the central bank, released minutes showing that the Fed is planning to draw down its $8.3trn balance sheet this year, in response to persistent inflation.

Since crypto and bitcoin are seen as inflation hedges, Hougan said the market’s reaction to the Fed’s “hawkish tilt” makes sense.

“The Fed’s hawkish stance pushed the market into a risk-off stance and lowered the risk of unexpected inflation,” Hougan said. “It makes sense we’d see a pullback. It could even linger for a bit, as the market stares down a lack of near-term catalysts.”

Outside of the market

Despite the rash of market woes, activity outside of the market remains positive.

For example, Goldman Sachs released a report on Thursday that said bitcoin could reach the $100,000 mark in 2022 if investors treat the asset like gold.

Similarly, Microstrategy recently announced that it had purchased another $94m worth of bitcoin, bringing its institutional total to 124,391 BTC as of 29 December. The company said its average purchase price for each bitcoin was just above $30,000.

Meanwhile, other companies are jumping into the crypto game. Airbnb recently said it is considering allowing customers to pay for rental homes with crypto holdings, while Samsung is building out a metaverse store on Decentraland.

Overall, these headlines suggest that the recent dip in the markets may be short-lived, Hougan said.

“Long-term, the fundamentals will win out,” Hougan added.

Read more: Crypto markets tumble as Fed considers paring balance sheet

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