Bitcoin Plunges. Here’s Why.

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Bitcoin has been on a slide for almost a month.

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Ratmer Visser / Dreamstime

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The price of bitcoin fell on Saturday, which began a month ago and gathered steam this week after the Federal Reserve clarified that monetary support for the market was soon going away.

The cryptocurrency’s biggest player is down almost 29% to $48,100 since November 8, when the price hit an all-time high. Most other speculative assets, including small-cap growth stocks, began to decline around the same time.

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At the start of Saturday, bitcoin sales surged, plunging more than 20% with some losses. At one point in time, crypto lost around $10,000 in an hour, according to CoinDesk, a crypto news website. The price of Ether also fell and is down 16% since November 8th.

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This week’s losses are tied to comments from the latest Covid-19 edition, Omicron and Fed Chair Jerome Powell. On Tuesday, Powell indicated that the central bank would move swiftly to end its pandemic-era bond-buying program.

The move would mean that less money would flow into bonds, which would lower bond prices and increase their yields. And the high return on safe, long-term bonds makes most speculative assets — investors’ long-term expectations — less attractive to themselves. This week also the stock market made a comeback.

As for bitcoin, its decline has already fueled buying interest. El Salvador President Nayib Bukele announced His country “bought the dip” Priced at just over $48,000.

The volatility doesn’t surprise bitcoin investors. The currency is up 63% to date, but has only lost half of its value from the April to July low. From that low, it more than doubled before reaching the top on 8 November.

So while buying dips may sound good at the moment, bitcoin investors won’t forget the correction from December 2017 to December 2018.

Be careful, especially if the Fed tightens policy sharply.

Write to Jacob Sonenshine at [email protected]


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