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Some experts believe bitcoin is due for a sharp decline in the coming months.
Bitcoin surged to a record high of almost $69,000 in November. It’s now sitting below $50,000, down almost 30% from its peak. Wall Street wisdom defines bear markets as a decline of 20% or more from recent highs, but it’s worth noting bitcoin is notorious for its volatility.
Carol Alexander, professor of finance at Sussex University, said she expects bitcoin to tank as low as $10,000 in 2022, virtually wiping out all of its gains in the past year and a half.
“If I were an investor now I would think about coming out of bitcoin soon because its price will probably crash next year,” Alexander said. Her bearish call hinges on the notion that bitcoin “has no fundamental value” and serves as more of a “toy” than an investment.
Alexander warns bitcoin could nosedive, as it has done in the past, after a big run-up in the price. In 2018, bitcoin tumbled close to $3,000 after climbing to a high of nearly $20,000 a few months earlier. The cryptocurrency’s backers often say that things are different this time, as more institutional investors are jumping into the market.
“Without question, Bitcoin’s price chart appears to track many historical asset bubbles and busts and is carrying a ‘this time it’s different’ narrative just like other bubbles,” said Todd Lowenstein, chief equity strategist of Union Bank’s private banking arm.
A common investment case for bitcoin is that it serves as a hedge against rising inflation caused by government stimulus. Lowenstein said there’s a risk that a more hawkish Federal Reserve may take the wind out of bitcoin’s sails.
“Goldilocks conditions are ending and the liquidity tide is receding which will disproportionately harm overvalued asset classes and speculative areas of the market including cryptocurrencies,” he said.
Still, not everyone is convinced the crypto party will end in 2022. “The biggest risk factor, namely [quantitative tapering] by the Fed, has been decided and likely priced in already,” said Yuya Hasegawa, crypto market analyst at Japanese exchange Bitbank.
First spot bitcoin ETF
A big development crypto investors are on the lookout for in 2022 is approval of the first spot bitcoin exchange-traded fund in the United States.
Although the Securities and Exchange Commission greenlit the launch of ProShares’ Bitcoin Strategy ETF this year, the product tracks bitcoin futures contracts rather than giving investors direct exposure to the cryptocurrency itself.
Futures are financial derivatives that oblige an investor to buy or sell an asset at a later date and for an agreed-upon price. By tracking futures prices instead of bitcoin itself, experts say, ProShares’ ETF could be too risky for novice traders, many of whom are invested …….