Bitcoin behaves like ‘ordinary’ stocks and plunges with the rest

The fact that bitcoin was embraced by large, established investors last year has one drawback: the price of the digital currency drops relentlessly if the big investors suddenly dislike it anymore.

After a bad week, or indeed a bad start to the new year, the cryptocurrency price fell further to below $ 35,000 on Saturday afternoon. Last November, one bitcoin was worth $ 69,000. Since that peak, the downturn has started and it has been particularly hard in recent days.

This price drop is very similar today to the stock market. Compare the price of bitcoin with the average price of the five hundred largest listed companies in the United States, and you see almost exactly the same movements up and down.

Higher interest rates

So lately most down. One of the most important stock market indicators in the US, the aforementioned S&P 500, has already fallen more than 8 percent since the start of the new year.

Many corporate stocks are declining in value as investors expect further rising interest rates in America. The US Federal Reserve umbrella organization has been preparing investors mentally for this for months.

It now looks like the ‘Fed’ will raise its key interest rate for the first time in March, only to implement a few rate hikes later. Politicians are also openly toying with the idea of ​​raising interest rates in other ways, for example by phasing out its corona emergency aid even faster than previously planned.

Eggs for their money

Higher interest rates give risky investments a blow, and bitcoin is one of them. Investors then pick eggs for their money, take them away from stocks and cryptocurrencies, and then put their money in safe government bonds. It pays more the higher the interest rate on these government bonds.

As a result, the currency has lost much of the value it had built up in recent years in recent weeks. This value increased from about $ 10,000 in September 2020 to almost 70,000 more than a year later.

This was primarily due to the fact that large investment funds, such as some US insurance companies, invested a small portion of their invested assets in bitcoin. Due to the limited supply of the digital currency, this immediately drove up the price.

According to analysts at investment bank JP Morgan, these large investors did this to hedge against high inflation. Bitcoin is sometimes seen as the new gold: there is only a limited supply of it, and that is how it should protect against depreciation of the currency.

Unbridled trust

Paradoxically, it is precisely the high inflation of recent months that is the reason why the currency is not doing well. The high inflation is the reason why central banks are raising interest rates and higher interest rates are cutting the price of bitcoin again.

Many supporters of the currency do not see it as an investment object, but as a future means of payment. They are less concerned about the daily exchange rate and believe that the central monetary system’s current monetary system will eventually end. According to them, Bitcoin can then offer an alternative. Last fall, El Salvador, a small state in Central America, was the first to take the step of declaring cryptocurrency a legal tender.

Captivated?

On the other hand, different governments are pulling the strings. The Russian central bank, for example, argued last Thursday for completely banning the use of bitcoin. Currency extraction should also be banned, according to the Bank of Russia.

That would mean Russia would go after China, which already imposed such a ban last fall. It is still unclear whether Russia will actually go in that direction. It is clear that such announcements do not benefit the exchange rate.

This is not the first time that the cryptocurrency has experienced severe declines. Last summer, the value briefly fell below 30,000 euros, after passing 60,000 euros in April. Then the coin quickly climbed up again.

Also read:

The value of Bitcoin drops to over $ 41,000

Bitcoin’s value continued to fall on Friday. The major digital currency fell 3.7 percent to $ 41,635 (36,847 euros). This is the lowest level since September.

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