The volatile but never boring Bitcoin market (BTC) has been whipped in recent days as investors ponder whether better returns can be made on other cryptocurrencies, even as a new variant of COVID-19 and the outlook from Federal Reserve policy shakes the landscape.
With news from COVID-19 Omicron Strain Concerns Investors, Bitcoin lost more than 2% on Tuesday when Fed Chairman Jerome Powell dropped several indications that the central bank is increasingly attentive to inflationary risksand maybe even speed up your plans to withdraw stimulating bonus purchases.
In theory, the emergence of a new variant would lead the Fed to err on the side of more stimulus, which should benefit cryptocurrencies. Still, Bitcoin drastically sold along with other risky assets last week, and he has yet to challenge his record of close to $ 68,000 set earlier this month, down more than 20% since it hit that peak.
To be sure, Bitcoin is still firmly entrenched in bull market territory. However, other crypto assets, some notably smaller and riskier, are experiencing increasing investment flows and may be withdrawing money from Bitcoin holdings.
Jon Wolfenbarger, a veteran equity analyst, told Yahoo Finance this week that he is using the 250-day moving average (DMA) to judge whether cryptocurrencies and other assets could start to worsen in the long term.
While stocks, bonds and commodities were still trading above 250 DMA on Friday, Wolfenbarger warned that "enough damage has been done recently to tell us we need to be very vigilant about continued weakness that could trigger the signal from the market. bear market, "even if the larger uptrend remains intact, he said.
During the recession, notable Bitcoin whales such as El Salvador, the nation's largest BTC-holding state, planning to issue BTC sovereign bonds; and MicroStrategy, the largest publicly traded US company, used the recent correction as a buying opportunity.
'Lower on the risk curve'
A recent trend indicates that more investors are looking for crypto trading opportunities outside of Bitcoin.
Ether (ETH), One of the top contenders for "Web 3.0", an integral part of the rise of non-fungible tokens (NFTs), decentralized finance, and the Metaverse, has posted gains in excess of BTC, roughly doubling its performance over the past week.
Meanwhile, riskier meme currencies like Dogecoin (DOGE-USD) and the Shiba Inu coin (SHIB-USD) are posting even bigger gains. The latter has risen more than 16% on the day, coinciding with its listing today on US-based cryptocurrency exchange Kraken.
At least a few crypto investors consider Bitcoin to be a safe-haven asset, largely due to stimulating government policies fueling inflation and devaluation, but its price action suggests that it is more closely tied to other risk-sensitive assets. . Added to that, the data suggests that money is turning from Bitcoin to other speculative cryptocurrencies.
This pattern is best captured in the ether / bitcoin trading pair, which is trading near levels not seen since 2018, according to Commercial view.
โAn ETH / BTC breakout would further support the thesis of an observable turnover off BTC and into more speculative highs[coins]"wrote asset manager Fundstrat in a research note on Monday.
Beyond speculation, ETH is also used to pay transaction fees on the Ethereum blockchain. Its price action relative to Bitcoin also shows why lesser-known cryptocurrencies built on Ethereum, especially within DeFi, are seeing the most significant gains in recent weeks.
โWhen the market moves and certain sectors are doing well, as they are currently in DeFi assets, traders add risk and allocate outside the safe haven [bitcoin]โSaid Bryan Hernandez, president of the DeFi trading app, Structure.
And the initial purchase in these smaller cryptocurrencies is much more speculative according to Hernรกndez.
"Because smaller DeFi assets tend to be less liquid, they are more affected by movements by powerful players such as large private equity funds or certain market makers," he added. "The access to credit that these players have gives them the ability to really push the price to new levels that then raise awareness and buy FOMO."
Other cryptocurrencies connected to the metaverse through the virtual platforms The Sandbox and Decentraland, have experienced oscillations of more than 50% and 25%, respectively, in recent days.
Contrary to a speculative frenzy, the rotation of Bitcoin to smaller cryptocurrencies suggests a degree of market health according to Mark Elenowitz, president and CEO of fintech firm Horizon Fintex.
"Investors are willing to go further down the risk curve for projects yet to be built (ie the metaverse) because, again, they see the overall structure of the market right now as a green trend." Elenowitz said.
If the new variant of Omicron shapes long-term buyer demand, some investors see a path for Bitcoin to rise in value as an inflation hedge. However, Craig Erlam, a senior analyst at Oanda, isn't so sure.
First, it is not yet clear whether central banks will stagnate enough to change investment growth, the analyst argues. Second, higher levels of inflation could cause the market to react in a markedly different way than it did during the early days of the pandemic.
"Everything is hypothetical at the moment," Erlam told Yahoo Finance. "But it is always too convenient to try to anchor [Bitcoin] even a narrative. "
David Hollerith covers cryptocurrency for Yahoo Finance. FOLLOW @dshollers.
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