Federal Reserve policy and the overall macroeconomic backdrop could shape the crypto market in 2022.
Following a day of sell-offs on Friday, the cryptocurrency market is posting some recovery momentum on Saturday. As of 10 a.m. ET, Bitcoin (CRYPTO:BTC) was up roughly 3.3% from the stock market’s closing bell on Friday. Meanwhile, Ethereum (CRYPTO:ETH) and Dogecoin‘s (CRYPTO:DOGE) tokens were up roughly 6.4% and 6%, respectively, over the same period.
Crypto prices began soaring in October and continued to gain ground until momentum started reversing in mid-November. The overall cryptocurrency market has continued to move lower in December as investors have weighed regulatory risk factors and the possibility that valuations for digital tokens may be trending toward a more prolonged bearish cycle. That being said, the cryptocurrency market actually looks relatively calm at the moment.
Bitcoin hit a lifetime high of $68,990.90 per token last month, but the token dropped below the $50,000 per token mark early in December’s trading and now trades at roughly $46,300 per coin. The cryptocurrency is down roughly 23% over the last month and approximately 33% from its high.
Bitcoin has posted a strong performance this year and is still the largest cryptocurrency by far, but there are signs that the market is shifting toward a different category of token. While Bitcoin can be used as a currency or a speculative investment vehicle, most of the excitement in the market appears to be building around tokens that are connected to service-and-development-focused blockchain networks and applications.
In dollar terms, Ethereum has been leading the charge on the crypto market’s rotation into application-backed cryptocurrencies. The price for the network’s ether token has surged amid increasing adoption for the network’s smart-contract and application-building features, and some investors and analysts see this momentum leading to “the flippening” — the moment when Ethereum’s market cap surpasses Bitcoin’s. Ether’s loss of just 8% over the last month of bearish crypto momentum suggests that the token is gaining strength relative to Bitcoin.
Meanwhile, Dogecoin is down roughly 29% over the last month and roughly 75% from its high mark. Dogecoin’s price per token peaked at roughly $0.69 back in May, but it quickly lost ground as investors took profits on the heels of explosive gains. The token has struggled to regain ground as investors have generally become more risk-averse and attention has shifted to other meme tokens.
Even with dramatic pricing volatility, 2021 has been a year of fantastic returns for the broader cryptocurrency market.
Despite lagging other cryptocurrencies that posted even stronger gains this year, Bitcoin has managed to put up strong gains across 2021’s trading, and it remains the top cryptocurrency. The token currently has a market cap of roughly $892 billion, while Ethereum’s ether token has a market cap of roughly $472 billion. Dogecoin’s even more incredible gains have helped it reach a market cap of $23 billion, and it currently ranks as the 11th largest cryptocurrency.
As we move through the end of 2021, investors are trying to parse how to weigh risks and find emerging opportunities with digital tokens and blockchain-based projects. While Federal Reserve policy, government stimulus, and other economic factors are generally thought to have a much greater impact on the pricing of stocks and real estate, these factors also appear to be having a significant impact on the cryptocurrency market.
Just as the ability to secure low-interest loans has filtered through to push equity prices higher, it’s likely also played a significant role in the strong bull market phase in the crypto market over the last year. With the Fed potentially raising interest rates three times next year and easing off stimulus spending, it’s possible that crypto valuations could face bearish pressures if investors generally become more risk-averse. For investors looking for exposure to the cryptocurrency space, sell-offs could present worthwhile buying opportunities, but dollar-cost averaging may be less risky than making large investments all at once.
The global crypto market cap has surged slightly up to $2.7 trillion, according tracker CoinGecko. Bitcoin has more than doubled this year, while Ether is up about sixfold. Both scaled records last week amid a fervor for digital assets driven by speculative demand and controversial arguments that they can hedge inflation risks.
Money pouring into bitcoin products and funds has hit a record $9 billion this year, and totaled $151 million last week in the 13th consecutive week of inflows, data from digital asset manager CoinShares showed on Monday. Although flows have been positive recently, volumes have been subdued in the second half, averaging $750 million daily versus $960 million in the first, CoinShares said.