Bitcoin may continue to sink in this risk-off environment
The price of the main cryptocurrencies continues to consolidate in the near term, with BTC/USD remaining close to its symbolic threshold of $20,000. However, the outlook remains bearish on the cryptocurrency market due to significant headwinds for risky assets in the current context of monetary tightening and deteriorating economic outlook.
Indeed, monetary conditions are returning to roughly normal levels after being accommodative for a decade, while the global economic outlook is worsening due to monetary policy tightening, the global energy crisis and health policy in China.
This cocktail of monetary tightening and economic slowdown is historically conducive to volatility and risk aversion, which has been the case in markets since the start of the year. Irrational forecasts are gradually giving way to wiser forecasts, causing the valuation of the most speculative and discontinued assets to plummet, as evidenced by the huge drop in Cathie Wood’s “ARKK Innovation” fund (-75% since February 2021).
Cryptocurrencies are no exception to the rule. While investors have enjoyed negative (or very low) real interest rates for almost a decade, they are now finding some of the most attractive returns since 2008. For example, investors can secure annualized returns of more than 6% per annum in the corporate debt market.
BTC/USD Daily Price Chart – Key Levels