Cryptocurrency Bitcoin has got off to a bad start for 2022 with its price falling below US$40,000 on Monday, the lowest it has been since last September.
Bitcoin has now lost 40 per cent of its market value in the last two months.
Analysts believe that moves to tighten monetary policy in light of galloping inflation is weighing on Bitcoin.
Less than two weeks into the new year, Bitcoin has lost 12 per cent of its value. Traders are now lacking confidence in the most popular cryptocurrency.
“A lot of investors are shifting towards these stable currencies to hedge out volatility. The sharp dip is not only experienced in cryptocurrencies but tech stocks and software stocks too,” said Edul Patel, CEO of cryptocurrency company Mudrex.
“Bitcoin and crypto are acting like risk assets right now. Investors are viewing Bitcoin as a play on the economic outlook, and right now that’s pretty murky,” added Callie Cox, an investment analyst with eToro.
Bitcoin was riding high last year, gaining 60 per cent with its advocates pointing to leading finance houses adopting it, seeing it as a diversification asset.
There are those who say this is a temporary blip and that Bitcoin will double its price this year as it becomes more popular. In fact, they see this as a good opportunity to buy. More traditionalist investors see Bitcoin as a volatile investment.
“The minutes from the Fed have increased expectations that the central bank of the world’s largest economy will now move faster to raise interest rates to fight soaring inflation,” said Nigel Green, CEO of deVere Group.
“As rates rise, holding volatile investments that produce little income becomes less attractive compared with government bonds,” the Wall Street Journal reported.
Warren Buffett of Berkshire Hathaway, regarded as the world’s most famous investor, is not a fan of Bitcoin and does not invest in it.
“I don’t have any Bitcoin. I don’t own any cryptocurrency. I never will.
“They don’t reproduce, they can’t mail you a cheque, they can’t do anything and what you hope is that somebody else comes along and pays you more money for them later on but then that person’s got the problem.”
“Bitcoin does not meet the test of a currency. It is not a durable means of exchange, it’s not a store of value,” Buffett said in a CNBC interview.