Bitcoin wins, but crypto braces for more sales without ‘no time for optimism’

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The new year has not been favorable for cryptocurrencies, which surged on Wednesday despite about a week of selling that briefly took Bitcoin below $ 40,000.

A nervous market started 2022 on a sour note, with a suddenly hawkish Federal Reserve and the Omicron wave of COVID-19 infections making investors risk averse. Meanwhile, Bitcoin has hit a new low of $ 39,893.62 – after declining more than 40% since its peak in November.

Bitcoin has lost more than 8% to its lowest levels this week, while smaller tokens like Ethereum, Solana, Avalanche and Terra have fallen even more. All have recovered during the last day.

Despite Wednesday’s rebound, it is far too early to call for a trend reversal in selling given the volume of trading on major crypto exchanges, Yuya Hasegawa, analyst at the Tokyo-based crypto exchange Bitbank, said this week. at Yahoo Finance.

After clearing the hurdle of Fed Chairman Jerome Powell’s confirmation hearing for a second term, investors nervously anticipate inflation data that will shape sentiment in the near term as the crypto continues to trade almost at the same rate as technology stocks.

Bitcoin’s price range for the rest of the week is expected to be between $ 40,000 and $ 48,000, Hasegawa said – but admitted that “now is definitely not the time to be bullish in the short term.”

The start of a rate hike campaign, which threatens to draw liquidity and control inflation that has been bullish for the crypto, is cooling sentiment. According to data from the Chicago Mercantile Exchange (CME), 72% of market participants expect the Fed to raise interest rates by 25 to 50 basis points in March.

“Hard comfort” in the fundamentals of cryptography

The Solana logo displayed on a phone screen and the depiction of cryptocurrencies can be seen in this illustrative photo taken in Krakow, Poland on August 21, 2021. (Photo Illustration by Jakub Porzycki / NurPhoto via Getty Images)

As bad as the current sell-off is, Matt Hougan, CIO of crypto asset manager Bitwise, still believes the current bear market won’t last as long as previous downturns, based on strong user fundamentals that digital coins are doing. are developed over the past year.

Outside of speculative activity, Hougan told Yahoo Finance that crypto adoption has never been higher. There has been a gold rush among small and large digital coin investors: in particular, venture capital helped fuel a $ 33 billion boom in crypto startups last year.

The story continues

This funding also explains why developer activity in the industry is at its peak, according to a report released last week by Electric Capital. The space attracts more developers when crypto prices recover. Yet, according to the report, the number of active developers remains historically stable when prices fall.

And the native tokens of Ethereum (ETH-USD), Polkadot (DOT1-USD), Solana (SOL1-USD), and Bitcoin make up the largest crypto developer ecosystems, with 65% of active developers joining in 2021.

But a Bitwise survey in December found that the percentage of financial advisers with crypto accounts “is up over 50% and is expected to continue to grow at that rate or faster over the next year,” according to Hougan.

This could be a “difficult comfort” for investors considering a tightening of Fed policy in the near term, but it could be a silver lining later, he added. “That doesn’t mean there isn’t more downside potential right now, but it does mean it’s not like the bear markets of the past,” the investor said.

Where will cryptocurrencies settle before the upward momentum returns?

Hougan said higher-growing Layer 1 smart contract tokens like Ether, Solana, Avalanche (AVAX-USD) and Terra (LUNA-USD) “will act like canaries in the coal mine as to whether and when the downward trend has been exhausted ”.

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

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