Bitcoin will lead the rally in risky assets when sentiment improves By Investing.com

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© Reuters

By Yasin Ebrahim

Investing.com – Tracked traditional risky assets like stocks on the downside recently amid nervousness about looming Federal Reserve action, but when sentiment on risky assets turns positive, BTC will lead the rally .

rose 3.7% to $ 48,375.

“The [sell-off] in bitcoin raises questions about whether BTC and other cryptos are risky assets that will continue to correct in the same way the stock markets do [at a time] when the Fed and other central banks become less accommodating, ”said Seamus Donoghue, vice president of strategic alliances at Metaco, in a recent interview with Investing.com ahead of the Federal Reserve’s decision on Wednesday.

The Federal Reserve is expected to announce that it will reduce the pace of bond buying on Wednesday and forecast a rate hike path sooner rather than later.

The years of easing the Fed’s monetary policy have added significant liquidity to various markets, including cryptocurrencies, helping to support asset valuations.

But the removal of the monetary policy accommodation from the Fed and other central banks will be short-lived, as officials weary of a nasty sell-off of risky assets.

“There is so much leverage not only in the crypto markets but more broadly in the system that any correction in risky assets will bring central banks back to the table to relax again because I don’t think the market can. handle a real correction, ”Donoghue added.

“Crypto will pave the way for any correction of a broader risky asset.”

Bitcoin’s recent decline in tandem with traditional risky assets like stocks has left some wondering why investors haven’t turned to BTC, which many have compared to “Gold 2.0,” for protection.

Bitcoin, however, appears to be a victim of its own success, as the influx of institutional investors into the space has been reported as one of the reasons popular crypto is more correlated with traditional assets like stocks.

“When institutional investors look to increase liquidity, they sell everything that is most liquid first, which makes bitcoin much more correlated than it was three or four years ago, when there was very little. institutional presence and that the asset was not correlated with traditional asset classes “, according to Donoghue. .

Looking at the underlying plumbing of the bitcoin network, it also looks like there is reason to be bullish as the amount of BTC passing on exchanges – usually a bearish indicator – is much lower than the previous May sell-off. to July, when BTC plunged below $ 30,000 to nearly $ 60,000.

“In May-July, trading saw a huge influx of some +168,000 BTC onto the net over a three month period. In the current correction from October to December, we saw a total of 49,000 BTC exiting trade, which is quite the contrast, ”Glassnode said in his weekly report.

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