Bitcoin bull run shows signs of wear as crypto investors look at other coins; Omicron, Conical Fed Loom

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The volatile but never boring Bitcoin (BTC) market has been turned upside down in recent days, as investors wonder if there are better returns to be had in other cryptocurrencies, even if a new variant of COVID- 19 and the outlook for Federal Reserve policy is rocking the landscape.

With news of the Omicron strain of COVID-19 troubling investors, Bitcoin lost more than 2% on Tuesday as Fed Chairman Jerome Powell hinted the central bank is increasingly alert to inflationary risks and could even speed up its plans to withdraw stimulus bond purchases.

In theory, the rise of a new variant would prompt the Fed to favor more stimulus measures, which should benefit cryptocurrencies. Still, Bitcoin sold off heavily along with other risky assets last week, and has yet to challenge its high of nearly $ 68,000 set earlier this month, down more than 20% since. that he has reached this peak.

To be sure, Bitcoin is still firmly entrenched in bull market territory. However, other crypto assets, some notably smaller and riskier ones, are experiencing increasing investment flows and could withdraw money from Bitcoin holdings.

Jon Wolfenbarger, a senior equity analyst, told Yahoo Finance this week that he is using the 250-day moving average (DMA) to judge whether crypto and other assets might start to deteriorate in the long term.

While stocks, bonds and commodities still traded above their 250 DMA on Friday, Wolfenbarger warned that “there has been enough damage recently to tell us that we need to be very vigilant in the face of weakness. continues that could trigger the bearish market signal, “even if the larger uptrend remains intact,” he said.

During the downturn, notable Bitcoin whales like El Salvador, the largest BTC-holding nation state, which plans to issue BTC sovereign bonds; and MicroStrategy, America’s largest publicly traded company, both used the recent correction as a buying opportunity.

The story continues

“Further on the risk curve”

A recent trend indicates that more and more investors are looking for crypto trading opportunities outside of Bitcoin.

Ether (ETH), a major Web 3.0 competitor integral to the boom in non-fungible tokens (NFTs), decentralized finance and the Metaverse, posted higher gains than BTC, roughly doubling its performance over the course of the year. last week.

Meanwhile, even higher risk coins such as Dogecoin (DOGE-USD) and Shiba Inu (SHIB-USD) show even bigger gains. The latter is up more than 16% on the day, coinciding with its listing today on the US-based cryptocurrency exchange, Kraken.

At least a few crypto investors see Bitcoin as some sort of safe haven, in large part because of stimulating government policies that fuel inflation and devaluation, but its price action suggests it is more closely tied to other risk sensitive assets. Additionally, the data suggests that money is being transferred from Bitcoin to other speculative cryptos.

This pattern is best captured in the ether / bitcoin trading pair, which is trading at levels close to levels not seen since 2018, according to Trading View.

A breakout of ETH / BTC would further support the thesis of an observable rotation of BTC towards more speculative alternatives[coins]”, wrote asset manager Fundstrat in a research note Monday.

Beyond speculation, ETH is also used to pay transaction fees on the Ethereum blockchain. Its price action against Bitcoin also shows why lesser-known cryptocurrencies built on Ethereum, particularly within DeFi, are recording the biggest gains in recent weeks.

When the market moves and certain sectors are doing well, as they are currently in DeFi assets, traders add risk and allocate out of the safe haven. [bitcoin] said Bryan Hernandez, president of DeFi trading app, Structure.

And the initial purchase in these small cryptocurrencies is much more speculative according to Hernandez.

Because smaller DeFi assets tend to be less liquid, they are more affected by movements by powerful players like large venture capital funds or certain market makers, ”he added. “The access to credit available to these players gives them the opportunity to really push the price up. to new levels which then create brand awareness and buy FOMO. “

Other cryptocurrencies connected to the metaverse through the virtual platforms The Sandbox and Decentraland, have seen fluctuations of over 50% and 25%, respectively, over the past few days.

Unlike a speculative frenzy, Bitcoin’s rotation to smaller cryptocurrencies suggests some market health, according to Mark Elenowitz, chairman and CEO of fintech firm Horizon Fintex.

Investors are prepared to move further down the risk curve for builds (i.e. metaverse) because, again, they see the overall structure of the market right now as a green trend. said Elenowitz.

While the new Omicron variant shapes long-term buyer demand, some investors see a way for Bitcoin to rise in value as a hedge against inflation. Yet Craig Erlam, Oanda’s senior analyst, is not so sure.

First, it is not yet clear whether central banks will slow down enough to alter investment growth, according to the analyst. Second, higher inflation levels could cause the market to react in a markedly different way than it did at the start of the pandemic.

Everything is speculative at this point, Erlam told Yahoo Finance. But it’s always too convenient to try to pin [Bitcoin] up to a single story.

David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.

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