Bitcoin continued its decline into the weekend, and this most speculative asset continued to be hit hardest as the excessive volatility of the global market over the past few years was corrected.The cryptocurrency with the largest market capitalization has approached $40,000 for the first time since the end of September, and has fallen by about 42% since it peaked three months ago. Ethereum, the second largest digital asset, also fell, and DeFi tokens such as Uniswap and Aave were still under pressure over the weekend.
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There are signs that the Fed is preparing to fight continued inflation by withdrawing stimulus measures. The minutes of the December meeting released by the Fed on Wednesday showed that the Fed may raise interest rates earlier and faster than expected and may shrink its balance sheet. These actions will lead to reduced liquidity in the financial system, which may curb the brilliance of high-growth and speculative assets.
“If the Federal Reserve becomes more aggressive, then risk assets including cryptocurrencies will become more vulnerable,” Miller Tabak + Co. Chief market strategist Matt Maley said.
Mike McGlone of Bloomberg Intelligence said that $40,000 is an important technical support level for Bitcoin. Cryptocurrency is a good barometer of the current decline in risk appetite. But he predicts that as the world becomes more and more digital, Bitcoin will become the benchmark collateral, and Bitcoin will eventually prevail.
With institutional and retail investors participating in the cryptocurrency market and its affiliated projects, the Covid-19 epidemic has helped Bitcoin further enter the mainstream. Now that the Fed has become more hawkish, riskier assets such as stocks and digital assets will be hit. The Bloomberg Galaxy Cryptocurrency Index, which tracks some of the largest cryptocurrencies, fell about 10% from the beginning of the year to Friday.
Eric Ervin, CEO of Blockforce Capital, said that the fall in asset classes could be the beginning of a “mini bear market.” Investors may exit in the near future, and long-term holders will become major holders.
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