Experts hawkish on cryptocurrencies in short term

(Image Courtesy: Shutterstock)

Even as the crypto market remains jittery following a selloff over the past few weeks on concerns that the US Federal Reserve is likely to tighten credit, experts remain hawkish on cryptocurrencies in the near term.

The market capitalisation of cryptocurrencies plummeted about 30 percent to $1.6 trillion from $2.3 trillion at the start of the year. Almost $700 billion was wiped out when the sharp fall sent Bitcoin down by about 28 percent and Ether down by about 30 percent, according to information from CoinGecko, a cryptocurrency ranking website.

However, nine of the top 10 digital tokens traded higher on January 26, with Bitcoin and Ethereum gaining over 3 percent each and Solana and Dogecoin rising over 7 percent.

With cryptocurrencies considered a speculative asset class, they held out in the peak of the pandemic, although rising inflation and a possible interest rate hike may have caused increased volatility in the crypto markets, with many shying away from risky assets.

That’s in stark contrast to the situation in Turkey, where skyrocketing inflation and the plunging lira have resulted in a surge in Bitcoin’s popularity.

One factor for the crypto market is the outcome of the two-day US Fed meeting, which will be known later on January 26.

Anupam Shukla, a partner at Pioneer Legal, says that in addition to the hawkish stance of the Federal Reserve, the crypto market is most likely dealing with headwinds from escalating tensions over Ukraine, the threat of a crypto ban by Russia’s central bank, the White House’s sudden enthusiasm to regulate digital assets, and inflationary woes in the UK. “It might be best for investors to be a bit more cautious,” Shukla said.

Experts pointed out that the plunging prices of cryptocurrencies could be either looked at as something “bad” or something that has begun to matter to policymakers because enough mainstream money is invested in it.

Pratik Gauri, founder of 5ire, says investing in crypto as a value proposition or a value-building vehicle will not be affected any time soon.

“Controlling and taxing income is every government’s responsibility and prerogative and that should have been priced into the market already,” Gauri said.

He added that the government’s oversight of the markets and the removal of fraud or wild speculation can only make it better and make it mainstream. Investors should look at it as an opportunity to get in at the ground floor level and invest with a brighter outlook.

The fundamentals point out towards crypto fatigue for now, with institutions having had their fear-of-missing-out moment and smaller cryptos having been almost crushed in the market bloodbath.

With cryptocurrencies experiencing swift and devastating drawdowns of magnitudes exceeding 50 percent, a crypto expert said the price of Bitcoin may bottom out around mid-$20,000, after which it will bounce back and unless there is a drastic institutional inflow and retailers wing back, crypto is on the edge of a crash it is fated to have from time to time, which still hasn’t panned out after the boom of 2020-2021.