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Bitcoin, Ether, Binance Coin… Most Cryptocurrencies See Their Price Fall In Early Year 2022

After breaking records in 2021, bitcoin starts 2022 in a much less spectacular fashion. The most valued cryptocurrency passed for a few minutes below the $40,000 threshold on January 10th. And it has lost 14% of its value since the beginning of the year. He is far from the only one to have a rough start to the year. Popular cryptocurrencies like ether or binance currency are also at half mast. For the first time in several months, Ether dropped below the $3,000 threshold on Jan.

What's happening ? The “threat” faced by cryptocurrency can be summed up in three letters: FED. A report by the US central bank published on January 5 in fact revealed that interest rates are likely to change very soon.

The main mission of central banks like the Fed is to control inflation by keeping it at a balanced level. For this, they use, among other things, the key rates, or in a simplified way, the interest rates that they apply to banks, which in turn influence the interest rates that banks apply to individuals or companies.

When inflation is too low, central banks lower interest rates. Borrowing money then costs less, which encourages investment and less incentive to save. On the other hand, when inflation is very high, central banks may decide to raise interest rates. Borrowing money is more expensive. This change “cools” the economy by promoting even more savings, to the detriment of investment.

A very favorable context for cryptocurrency...In the face of the unprecedented crisis caused by Covid, several central banks have tried to protect the economy within their perimeter from a downturn by lowering their key rates. This is remarkably what the European Central Bank has done. And that's also what the Fed did. Since March 2020, the Fed's key rates have remained very low (between 0 and 0.25%). A bias that has made borrowing and, by extension, cryptocurrencies much easier.

When they can easily borrow money, investors have more leeway to venture into risky bets. The fact that the price of money has been so low since the beginning of the pandemic has greatly favored cryptocurrencies, assets whose volatility can generate substantial gains… and equally brutal losses. It was in 2020 that bitcoin really took off: while it started the year at around €6,400, it ended at around €23,500.

It's the end of recess...But it won't last because inflation is galloping in the United States. In November 2021, it stood at 6.8% in one year, a very high price increase that we've had the most observed for nearly forty years. This situation has a very direct impact on the purchasing power of the American population. To defuse the situation, the Fed planned to raise interest rates. And the latest report from the US central bank (the famous “minutes”) revealed that the tightening of the screws would be faster than expected and could take place as early as March.

Suffice it to say that it is the end of the recess for investors. As borrowed money becomes more expensive, they will be less tempted to gamble on risky securities. As Bloomberg points out, this alternation will therefore constitute a real test for bitcoin and its counterparts. Will cryptocurrency enthusiasts continue to bet so much on them when the money is no longer flowing? The sector will inevitably be impacted.

Cryptocurrencies have become democratized... However, it must be recognized that this market has also evolved a lot. Cryptocurrencies have become more democratic. ” The growth of legitimate uses of cryptocurrencies so clearly exceeds that of criminal uses that the share of illicit activities in cryptocurrency transaction volumes has never been lower. “, underlined incidentally recently Chain. While in 2019, 3.37% of cryptocurrency transactions were carried out by actors involved in activities prohibited by law, this number dropped to 0.15% in 2021.

Companies like PayPal now also allow you to sell or buy cryptocurrencies, companies like Tesla and SpaceX have invested in it, and one country, El Salvador, has even decided to recognize bitcoin as legal tender. The regulatory framework around cryptocurrencies is also starting to take shape. And the year 2021 proved to us that a cryptocurrency like bitcoin has a solid technical foundation. Even when China made the groundbreaking decision to stop mining bitcoin on its soil (when it previously hosted between 65 and 75% of global mining), the bitcoin blockchain worked as it should. The difficulty level of the equations has been adjusted as expected for the reduced amount of mining machines, so that activity does not crash and transactions can continue to be validated. Meanwhile, the Ethereum Foundation is preparing a major technical transition which, if it meets all expectations, could significantly reduce the energy consumption of Ether mining.

However, the way in which the price of major cryptocurrencies like bitcoin, ether or binance currency will evolve remains unclear. And the future of riskier crypto assets like the Doge coin or other meme coin is even more so.

from international agencies