11.01.202211:27 Forex Analysis & Reviews: Bitcoin endures worst start of year in its history

On Monday, bitcoin dipped below $40,000 for the first time since September in its worst start of the year in its history.

During the New York session, the cryptocurrency bounced off the lows of the day after declining by 6% to $39,774. BTC has lost 14% since the beginning of 2022, experiencing the biggest loss at the start of the year since at least 2012. Since reaching an all-time high of about $69,000 in November 2021, bitcoin has slumped by more than 40%.

"It has had a pretty shocking start to 2022. There's a lot going on. We know that Bitcoin is volatile but even for Bitcoin, we're seeing some really big moves," commented Fiona Cincotta, senior financial markets analyst at City Index.

Created by an anonymous person or group under the alias of Satoshi Nakamoto after the 2008 global financial crisis, bitcoin has still gained almost 500% since late 2019. It began trading in 2009, and Information on its earlier prices is limited.

The COVID-19 pandemic helped BTC become more mainstream. Following record stimulus injections by governments and central banks, various institutions and investors got involved in the crypto market and its ancillary projects. A hawkish policy shift by the Federal Reserve has put pressure on riskier assets, such as stocks and digital assets.

"Cryptocurrencies are likely to remain under pressure as the Fed reduces its liquidity injections. Bitcoin could end 2022 below $20,000," predicted Jay Hatfield, chief executive of Infrastructure Capital Advisors.

$40,000 is an important technical support level for BTC, said Bloomberg Intelligence's Mike McGlone. Cryptocurrencies are a good gauge for the current reduction in risk appetite. Bitcoin would eventually come on top as it becomes a benchmark collateral and the world goes increasingly digital, McGlone projected.

A more hawkish Fed policy affects not only interest rates, but the equity rate premium as well, as the Fed withdraws funds from the capital markets. "Riskier investments, such as unprofitable tech, meme stocks and cryptocurrency are disproportionately affected relative to the rest of the market since those investments are approximately twice as volatile as the overall market so have double the risk premium as the average stock," Jay Hatfield noted.

According to CoinShares data, digital asset investment products saw weekly outflows totaling about $207 million, out of which about $107 million were from bitcoin.

Noelle Acheson, head of market insights at Genesis Global Trading, noted that the bitcoin's fall appears to be driven more so by short-term traders than long-term coin holders. In fact, her analysis shows that long-term holders are "buying the dip."