cryptoknowmics.com
Bitcoin is coming to the end of a tumultuous month, with losses in January putting it on track for its worst start to a year since the start of the 2018 'crypto winter.' According to Bloomberg data, the largest cryptocurrency by market value has only had approximately a dozen up days this month, with the rest of the time being spent in a downtrend. Other digital assets have fallen as well, with the second-largest token, Ether, down approximately 30 percent since the end of December. Bitcoin fell below $33,000 in January from a high of about $69,000 less than three months earlier, as part of a broader selloff in risk assets amid growing expectations that the Federal Reserve would hike rates soon as it reverts to its ultra-accommodative policy settings. From Bitcoin and memecoins to publicly traded crypto exchanges and miners, the crypto ecosystem has been hammered hard.
Troy Gayeski, chief market strategist at FS Investments, said over the phone, "Crypto is a very volatile asset class — and I hope that everyone investing in that market is aware of the volatility potential." "It's a much trickier climate now than it was six, twelve, or eighteen months ago when everything was 'green-light go.'" "Now it's a 'yellow-light caution,'" she says.
Bitcoin dropped as much as 2.9 percent to roughly $36,680 on Monday before recouping losses. It has now dropped more than 18 percent in a month, the worst start to a year since 2018's 29 percent drop and a bleak follow-up to December's 19 percent drop. According to a report from CryptoCompare, price drops have resulted in lesser volume. Following a spate of hot inflation prints, analysts stated in the study that ‘macro sentiment around risk assets has been the dominating narrative in the markets, with expectations of major unwinding of quantitative easing.’ They stated that for the first time since August, digital-asset investment products have suffered outflows, with weekly withdrawals averaging $88 million so far in January. Since December, total assets under management for Bitcoin products have plummeted by 23 percent. Between November's peak and January's lows, Bitcoin has lost approximately half of its value. According to Goldman Sachs' Zach Pandl and Isabella Rosenberg, this loss puts it at ‘the bottom end of the spectrum’ of large drawdowns in the past. Since 2011, the pair estimates that the coin has had five big pullbacks from all-time highs, with an average peak-to-trough fall of 77 percent. They noted in a note that the decreases continued on average seven to eight months. According to them, the largest cumulative decrease in bitcoin occurred in 2011, when it fell by 93 percent. While the market's current turmoil may not be as alarming to crypto veterans who are used to it, many new investors have only recently entered the market, making the rapid drop extremely distressing.
“I’ve always said if you’re uncomfortable waking up to a 30 percent, 40 percent, even 50 percent decline for whatever reason, you probably shouldn’t own it,” said Gayeski.
And memories of the previous ‘crypto winter’ — a term endemic to the digital-asset market that refers to a rapid drop followed by months of doldrums — are reigniting fears that the same thing is happening now. The most recent such drop occurred in 2018, when Bitcoin plunged by about 80 percent and took more than a year to recover to its previous high.
"While the Bitcoin selloff has been somewhat restrained heading into this week, the outlook for the cryptocurrency market as a whole remains gloomy, with large losses observed across a number of once-popular altcoins," said Nicholas Cawley, DailyFX Strategist. "If the market expects Bitcoin to lead the road higher, it will almost certainly be disappointed."