US$130 billion wiped off today

Just another manic Monday.

Those who are all in with cryptocurrency are crying in their pillows as US$130 billion was wiped off that market today (January 24).

Bitcoin fell below US$33,000 – that’s half of the high it reached in just November of last year. In fact, Bitcoin has fallen by 10 per cent just today with Ethereum dropping by a whopping 15 per cent.

There are plenty of champions of cryptocurrency but it appears it will remain a volatile and emerging currency for a while.

According to CNN: “Investors are getting jittery about digital currencies and other riskier assets ever since the US Federal Reserve signalled it may unwind economic stimulus more aggressively than expected.”

Some countries, including Russia and India, are now frowning on cryptocurrencies and are looking to put measures in place to prevent their proliferation.

So why the volte-face?

Andreiko Kerdemedidis’ article Rethinking the longevity of cryptocurrency’s pay-for-processing model in Tech Crunch should shed some light.

He writes in part: “What will become of the dream of having a truly decentralised crypto ecosystem? Is it really impossible for decentralised networks to compete with centralised ones, from a transaction fee standpoint?

“At present the network economics of all current major public cryptocurrencies and blockchains ignore the need for utility value-based pricing, which means that the price of transacting on a blockchain is not congruent with the customer’s perception of the utility value of making that transaction.”

The recent fall off in cryptocurrency has not gone unnoticed by market players and analysts.

“The movements in cryptocurrency markets have been correlated to the selling seen in higher risk assets like technology stocks as investors prepare for tighter monetary policy from the US Federal Reserve and higher interest rates,” said business TV network CNBC.

Tech stocks including Apple, Facebook, Amazon and Tesla are all down today.

“It’s possible that the macro economic concerns such as the Fed’s responses to inflation rates have facilitated more de-risking activity in general,” said Juthica Chou, head of OTC Otions Trading at Kraken, according to CNBC.

“The recent price drop coupled with high volatility could be leading to further selling as participants look to reduce risk.