Bitcoin falls 14% YTD, worst start to year on record

Bitcoin dipped below $40,000 for the first time since September last year and is down 14% year-to-date, which would be its worst start to a year since the cryptocurrency’s inception.

Zhitong Finance APP learned that Bitcoin fell by 6% during the New York trading session to $39,774, and then rebounded from the low of the day. This year, the decline is about 14%, the largest annual decline since 2012. Bitcoin has fallen more than 40 percent since reaching an all-time high of nearly $69,000 in early November.

"2022 is off to a pretty shocking start," said Fiona Cincotta, senior financial markets analyst at City Index. "There's a lot going on. We know bitcoin is volatile, but even for bitcoin, we're seeing some Very big swings."

Bitcoin, created by an anonymous person or group calling themselves Satoshi Nakamoto after the 2008 global financial crisis, is still up nearly 500% since the end of 2019.

The pandemic has propelled bitcoin further into a mainstream asset as institutional and retail investors engage in crypto trading and governments and central banks provide record stimulus. Now that the Fed has become more hawkish, riskier assets such as stocks and digital currencies have been hit.

“Cryptocurrencies are likely to remain under pressure as the Fed reduces liquidity injections,” said Jay Hatfield, CEO of Infrastructure Capital Advisors. “Bitcoin could dip below $20,000 by the end of 2022.”

Bitcoin falls 14% YTD, worst start to year on record

Bloomberg Intelligence analyst Mike McGlone said $40,000 is a key technical support level for Bitcoin. The price action of cryptocurrencies reflects the current decline in risk appetite. But he expects bitcoin will eventually become the benchmark collateral as the world becomes more digitized.

“Fed tightening will not only affect interest rates, but as the Fed withdraws money from capital markets, so will the stock market risk premium. Risky assets such as loss-making tech companies, meme stocks and cryptocurrencies are also affected compared to other assets. Assets are more affected because those assets are roughly twice as volatile as the overall market, and therefore have twice the risk premium than common stocks," Hatfield said.

Data compiled by asset management firm CoinShares showed weekly outflows of about $207 million from digital investment products, a record high. Of this, Bitcoin outflows amounted to about $107 million.

Noelle Acheson, head of market analysis at Genesis Global Trading, noted that Bitcoin’s plunge appears to be driven more by short-term traders than by long-term holders. In fact, her analysis shows that long-term holders are "buying the dip."

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