The volatile but never boring market for Bitcoin BTC has recently been whipsawed due to investors pondering whether there are better returns to be had in other cryptocurrencies, even as a new COVID 19 variant and the Federal Reserve's policy outlook shake up the landscape.
With the news of the Omicron strain of COVID 19 unsettling investors,Bitcoin fell by over 2% on Tuesday as Fed Chairman Jerome Powell dropped several hints that the central bank is being more attentive to inflationary risks and may even accelerate its plans to pull back on stimulative bond purchases.
It sold off sharply together with other risk assets last week, but has yet to challenge its record high near $68,000 earlier this month, off by more than 20% since hitting that peak.
It is true thatBitcoin is still in bull market territory. Other assets, some notably smaller and higher-risk, are seeing growing investment flows and may be drawing money away from holdings ofBitcoin.
Jon Wolfenbarger, a veteran equities analyst, told Yahoo Finance this week that he's using the 250 day moving average DMA to determine whether cryptocurrencies and other assets might begin long term turns for the worse.
While stocks, bonds and commodities are still above their 250 DMAs on Friday, Wolfenbarger cautioned that there has been enough damage done recently to tell us that we need to be vigilant for weakness that could trip bear market signal, even if the larger uptrend remains intact, he said.
During the downturn, notableBitcoin whales like El Salvador, the largest nation state holder of BTC, plan to issue sovereign bonds, and MicroStrategy, the largest publicly listed U.S. company, both used the recent correction as a buying opportunity.
More investors are looking for trading opportunities outside ofBitcoin, according to a recent trend.
The major Web 3.0 contender for the NFTs decentralization of finance and the Metaverse has logged gains higher than BTC, doubling its performance over the last week.
There are larger gains in higher risk meme-coins such as Doge coin DOGE-USD and Shiba Inu coin SHIB-USD. The latter's price is up over 16% on the day, coinciding with its listing on the U.S. based criptocurrency exchange, Kraken.
At least a few investors considerBitcoin a safe haven asset, largely because of the stimulative government policies that feed inflation and devaluation, but its price action suggests that it is more closely linked to other risk sensitive assets. The pattern is best captured in the etherbitcoin trading pair, which is trading near levels not seen since 2018, according to Trading View. A break-out of ETH BTC would support the thesis of an observable rotation out of BTC and into more speculative alts coins, the asset manager wrote in a research note Monday.
ETH is used to pay transaction fees on the Ethereum block chain, as well as to pay transaction fees. The price action relative toBitcoin shows how lesser known cryptocurrencies built on top of Ethereum are seeing the most significant gains over the last few weeks, as shown by its price action relative toBitcoin.
Bryan Hernandez, President of the DeFi trading app, said that traders add risk and allocate money out of the safe haven when the market is moving and certain sectors are doing well, as they are currently in DeFi assets.
Hernandez said that the initial buying in these smaller cryptocurrencies is more speculative.
He said that because smaller DeFi assets tend to be less liquid, they are more affected by moves from powerful players like big VC funds or certain market makers. The access to credit that these players have gives them gives them the ability to push the price to new levels that create awareness and FOMO buying. Over the last few days, swings of more than 50% and 25% have been seen in other cryptocurrencies aiming to connect to the metaverse via virtual platforms The Sandbox and Decentraland.
According to Mark Elenowitz, president and CEO of Horizon Fintex, the rotation fromBitcoin to smaller cryptocurrencies suggests a degree of market health, contrary to a speculative frenzy.
Investments are willing to go further down the risk curve for yet-to- be-built projects i.e. The metaverse view the overall market structure as trending green at the moment. Elenowitz said something.
But Craig Erlam, Oanda senior analyst, isn't so certain.
It isn't clear yet whether central banks will stall tapering enough to change investment growth, according to the analyst. The market may react differently to the pandemic if higher levels of inflation are taken into account.
Everything is hypothetical, Erlam told Yahoo Finance. It's too convenient to try to pin Bitcoins down to one narrative.