2021 was an amazing year for the cryptocurrency market, as Bitcoin saw several new price hikes all over the year. In November, the beloved cryptocurrency Bitcoin crossed $68,000 for the first time, surpassing its previous records set during the year. However, the cryptocurrency failed to hold its momentum for a long time, as it lost more than a fifth of its value over the weekend in early December.
In 2021, the price of Bitcoin rose more than 45 percent, while the price of its rival, Ethereum, rose more than 385 percent. The amazing performance of the cryptocurrency market in 2021 was demonstrated against the background of many catalysts, including:
The cryptocurrency market also saw a pre-Christmas sell-off in early December 2021. The pre-Christmas risk taking among investors disrupted global markets from stocks to cryptocurrencies. Indeed, Bitcoin became the victim of an intense bout of selling pressure, with the cryptocurrency dropping as much as $10,000 in an hour early in December.
MUST READ: What awaits the cryptocurrency market this year?
A combination of macroeconomic concerns around the Omicron variant and pre-Christmas profit-taking by traders led to the recent sell-off in cryptocurrencies. Alongside this, the drop in cryptocurrencies came as stock markets continued to struggle with renewed concerns about Covid-19 and high inflation. Rising inflation is forcing central banks to tighten monetary policy, threatening to reduce the liquidity tailwind that initially lifted a wide range of crypto assets.
Some experts saw the drop in cryptocurrency prices as a buying opportunity for investors who missed the boat as prices surged during the early days of the fourth quarter.
What awaits us in the future?
Although the cryptocurrency market was under pressure in late 2021, the market recently extended its gains after strong inflation data in the US. Inflation recently jumped at its fastest pace in nearly 40 years in December 2021, reflecting a 7 percent rise from last year. Rising inflation increases pressure on the Federal Reserve to confront the biggest threat to the US economy.
Read also: Inflation in the United States is getting hotter. How it can affect Australians
Speculation is rife that the cryptocurrency market could see further correction in the coming months as the US Federal Reserve decided to cut its bond purchases faster than expected to control inflation. The more the Fed tapered off, the more volatility could be seen in the cryptocurrency market, which could lead to selling pressure.
Meanwhile, the Federal Reserve’s indication of multiple interest rate hikes this year should inflation continue to rise could lead to more volatility in the cryptocurrency market. Besides, announcements about regulation, which remains one of the biggest changes in the crypto industry worldwide, is expected to affect market prices.
Good reading: What sectors benefit from higher interest rates?
While paying for goods and services in cryptocurrencies does not make sense to most people now, further institutional adoption could change the market landscape in the future. Furthermore, Bitcoin is not the only game in town right now when it comes to crypto. Thus, one can expect traders to switch to the so-called altcoins that have performed well so far.
At the same time, the Omicron variant poses a significant risk to the crypto market, which could lead to price volatility for Bitcoin and other altcoins if virus cases continue to rise.
Tips for investors
Individuals who invest in cryptocurrency can expect continued volatility and extreme price volatility in the market. Thus, it seems necessary for investors to keep their cryptocurrency bets at a small percentage of their total investable net worth.
Moreover, investors should refrain from changing their long-term investment strategy based on short-term price fluctuations. Investors should also be wary of the decentralization aspect of the cryptocurrency space, which makes investing in such a market a very risky area.
Although the cryptocurrency market is known for its extreme volatility, extensive monitoring and research can help investors turn a profit in the near future. While it is difficult to track the fundamentals of the crypto market, investors can create profitable portfolios by focusing on as much as they can understand.
do not miss: Quick Guide: How do cryptocurrencies work?