The crypto dip: Buying opportunity or the start of a bubble burst

The crypto dip: Buying opportunity or the start of a bubble burst
The crypto dip: Buying opportunity or the start of a bubble burst

PUNE (CoinChapter.com) — The cryptocurrency market has bled over $570 billion in the last two days.

Bitcoin, the flagship crypto, has dropped to around $48,000 per token after trading around $69,000 just weeks ago—a fall of almost 32%. Ether, the second-largest token, fell as much as 17.4% before trimming the retreat to about 10%. The overall crypto sector has shed around a fifth of its value, sliding to $2.2 trillion, according to tracker CoinGecko.

crypto, The crypto dip: Buying opportunity or the start of a bubble burst
Total cryptocurrency market cap. Source: TradingView

Meanwhile, the downtrend has seen other major cryptocurrencies, including Binance’s BNB, Solana’s SOL, Cardano’s ADA, and Ripple’s XRP, each losing almost 14% in just 24 hours. 

Quantitative Easing helped crypto assets place their value as risk hedges

The unprecedented crypto bull run that took Bitcoin from a meager of $4,000 apiece in March 2020 to highs of around $69,000 last month, began last year.

The credit in part adhered to the massive stimulus measures undertaken by the central banks around the world and the U.S. Federal Reserve in response to the economic hit of the Covid-19 pandemic and lockdowns put in place to contain it.

U.S. quantitative easing. Source: Statista
U.S. quantitative easing. Source: Statista

Impact of battered Chinese stocks trading in the NYSE

Another story contributing to the increased value perception in cryptocurrency assets is the fact that the Chinese stocks trading in the United States have lost massive amounts of value since Beijing officials issued a series of sweeping private sector regulations this summer—in one instance banning the for-profit education business virtually overnight.

For instance, Didi shares have tanked 53% since they started trading in June, and Alibaba, once worth more than $858 billion, has crashed about 50% this year. 

Tapering QE, rebuilding trust in the fiat

However, the Fed has begun to “taper” its lose economic policy following a sharp rise in inflation and an almost fully-recovered labor market.

The unemployment rate fell to 4.2% in November, down from 4.6% in October, adding 210,000 new jobs—its lowest point in more than a year. What nails the coffin is the fact that the Fed has also trimmed its bond purchases in recent weeks.

“In an odd twist, the lower growth paired with potential supply chain issues from the new omicron variant may actually cause the Fed to raise rates more aggressively than previously thought—all in an effort to fight rising inflation,” cited Jay Pestrichelli, the CEO of the Florida-based investment firm Zega Financial.

Famed investor Louis Navellier quoted that the widely-expected the Federal Reserve tapering could burst the bitcoin and crypto bubble. Navellier also warned the Bitcoin price could drop below $10,000 per token, a fall of more than 80% from its all-time high set last month of almost $70,000.

Crypto BTC/USD weekly price chart. Source: TradingView
BTC/USD weekly price chart. Source: TradingView

The bitcoin price has recorded similar declines in the past, although bullish bitcoin and crypto investors remain confident that the bitcoin’s price is going far higher in coming years.

“I would take a decline below $46,000 (the 200-day moving average) to be a yellow flag and a decline below the spring low of $28,500 to be a completed massive double top which points to a decline to below $10,000, which incidentally would match many of the multiple 80%+ declines in its storied history,” Navellier wrote.

Last week, billionaire crypto investor Mike Novogratz also warned that Fed chair Jerome Powell, in his attempts to counter the 30-year high inflation, could trigger a bitcoin and crypto market meltdown in 2022.

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