Bitcoin is taking a beating this week as the Federal Reserve prepares a stimulus removal, but the bulls are feeling encouraged as ever.
The largest cryptocurrency by market value has lost about $ 80 billion since the start of the year in a slump that has taken it to its lowest levels since its flash crash in early December. But predictions have come that it may still reach the vaunted $ 100.000 level at some point this year.
Black Wednesday for the digital asset
It would have to more than double from current levels around $ 42.900 to reach that milestone. Analysts say it's not that it can't - it has posted a ton of triple-digit annual returns over the past decade - but that the way to go may be tougher for cryptocurrencies with a more hawkish Fed.
"Cryptocurrencies have benefited from the Fed's massive liquidity injections since 2020," said Matt Maley, chief market strategist for Miller Tabak + Co. "He pushed these assets too far, too fast."
Along with riskier assets like US equities, Bitcoin and other digital assets tumbled Wednesday after minutes from a recent Fed meeting showed officials were willing to withdraw stimulus sooner than many previously predicted.
The statement indicated that the central bank would anticipate and accelerate rate hikes, which would raise the cost of capital across the economy. This has the potential to keep investors away from cryptocurrencies, many of which have made huge gains over the past couple of years amid stimulus amplification.
But not everyone agrees that this environment is bad for cryptocurrencies. Bitcoin is a risk asset that is evolving into a digital reserve asset in a world that goes in that direction - and that has positive implications for its price, according to Bloomberg Intelligence's Mike McGlone.
The road is long and bumpy
The coin is "headed for $ 100.000," he wrote in a statement. “Cryptocurrencies are at the top of the risky and speculative ones. If risk assets decline, it helps the Fed fight inflation. By becoming a global reserve asset, Bitcoin can be a primary beneficiary in that scenario. "
Still, that hasn't stopped other industry participants like Messari Inc. co-founder Ryan Selkis from teasing the basis of some of the skyrocketing forecasts.
And earlier this week, Goldman Sachs analyst Zach Pandl wrote that Bitcoin could hit $ 100.000 if it continues to take market share from gold.
Bitcoin sang the stock market tune recently, with the coin's 100-day correlation coefficient and the S&P 500 now sitting at 0,44. This is the highest reading since the fourth quarter of 2020. A coefficient of 1 means that assets are moving at a walking pace, while minus-1 would show that they are moving in opposite directions.
"Now that this stimulus is about to become less abundant more quickly than the markets had thought, it makes sense that these assets are falling in tandem," Maley said.
Fed policy is undermining investor safety
Lindsey Bell, Ally's chief markets and money strategist, says investors were already nervous at the start of the year thanks to uncertainty over the Fed's political path.
"People are reevaluating the risk they want to take," he said over the phone. It doesn't help that the dollar has strengthened as well, which serves as a reminder to cryptocurrency investors that it is "still the currency of the world and it still remains very strong and is not going anywhere, and therefore there is no need to. hide your money under the mattress or in cryptocurrencies ".
Greg Bassuk, CEO of AXS Investments, an asset manager who focuses on alternative investments, says Bitcoin should comprise a portion of an investor's wallet.
“We are very bullish on Bitcoin and digital assets that cut through all the day-to-day noise,” he said in an interview. "Digital assets will be treated as long-term as commodities, stocks and bonds, and real estate, and other more traditional asset classes in the years to come."