Published: January 14th, 2022
It’s a new year crypto rout. Bitcoin (BTC) has entered 2022 battered and bruised, dipping below USD 40,000 for the first time since late-Summer 2021.
On Tuesday, 11th January, the world's most popular crytpocurrency fell by 4.1 per cent over a 24-hour period, briefly settling at USD 39,866.68 before recovering slightly to just above the symbolically significant USD 40k level.
While BTC had begun to climb out of its hole at the time of writing, it started the week down 14 per cent from the start of the year. From the all-time high of USD 69,000 reached in November 2021, the world's flagship cryptocurrency has sunk by an eye-watering 41 per cent.
In a parallel slump, Ethereum (ETH) fell below USD 3,000 on Monday 10th January to levels not seen since September of 2021.
Data from CoinGecko showed that the second-largest cryptocurrency by market cap had shed 4.7 per cent of its value between Monday 10th January and Tuesday 11th January and lost as much as 21 per cent in the previous seven days.
After reaching a daily high of USD 3,200, Ethereum was changing hands at about USD 2,900 on Tuesday. Just two months ago, on 9th November, ETH hit an all-time high of USD 4,876. Since then, the coin has lost 37 per cent of its value.
In a novel twist, the market for non-fungible tokens (NFTs) hasn't been dented by the bears swirling around Ethereum. Top-ranked NFT marketplace OpenSea saw its second-best week in terms of transaction volume between January 3rd and 19th. The latest funding round for the company pegged its valuation at more than USD 13.2 billion.
What’s happening? There are several reasons why ETH and BTC are limping into 2022, ranging from controversial Crypto.com ads to political unrest in Kazakhstan and recent policy signals from the US Fed.
No stranger to controversy, Bitcoin found itself in the centre of a new furore as the year commenced.
On 2nd January, political protests exploded in Kazakhstan when the government removed a price cap on petroleum gas, causing fuel prices in the country to double almost overnight.
In response to the chaos, the government shut down internet access across the country. That had the knock-on effect of disabling or disrupting a significant number of Bitcoin miners, killing the BTC hash rate and pushing down its price.
Three days later, the US Fed announced it could speed up the timetable for raising interest rates. Such a move would mean the US central bank is ceasing to print money and letting borrowing become more expensive as a way to control inflation.
The price of Bitcoin, Ethereum, and the broader crypto market all fell after the news broke. It’s a widely held view that concerns about fiat currency degradation have been one of the main drivers of the crypto market rise since the pandemic began.
Signs that central banks are returning to a more disciplined approach to managing the traditional money supply may take some of the shine off alternative forex assets like cryptocurrencies.
If that wasn't enough, the mainstream reaction to Matt Damon’s Crypto.com television advert soured crypto market sentiment even further.
'It’s pure nihilism to and even a bit creepy to suggest that investing in dog-meme coins is anything like the moon landing,’ wrote London’s Guardian newspaper in a review of the ad.
It isn't just BTC and ETH. In the past seven days, most of the crypto top ten have taken double-digit hits to their prices.
The only top-20 crypto to grow in price over the past seven days has been Chainlink (LINK), which was up 19 per cent at the time of writing. Every other top-tier coin has posted double-digit losses so far this year.
Bitcoin’s fall has been one of the more modest this year, and there are already signs that it may be set to return to its 2021 form. The hash rate for the Bitcoin network set a new record this past Sunday (9th January), reaching an all-time high of 203.4 exahashes per second (EH/s).
That record marked a 200 per cent increase in power since June of 2021 when China's country-wide mining crackdown cratered the network's hash rate.
Many of those China-based miners took advantage of Kazakhstan's relatively unregulated mining market and relocated. When they did, the BTC network bounced back more powerful than before. The protests unleashed over the past week, however, prompted authorities to switch off internet access across the country, sinking the network's hash rate again.
On Tuesday, 11th January, America’s Securities and Exchange Commission (SEC) held off making a decision on whether to approve or reject the closely watched bitcoin spot ETF application submitted by the New York Digital Investment Group (NYDIG). The application joins two other proposals by Grayscale and Bitwise. All three are now on the SEC’s back burner.
On Wednesday 12th January, BTC reached another milestone when its once-dominant market cap sunk to 37.26 per cent. The number means bitcoin has reached its lowest level in terms of market footprint since 2018.
Fed officials also chose Wednesday to announce that it may raise interest rates and stop printing money as early as 15th March. BTC shed six per cent of its value on the news.
Ethereum and its altcoin offspring didn’t do much better
While Chainlink is surging, others have found themselves deep in the red in January. Ethereum is down despite soaring NFT sales, and Ethereum also found itself entangled in competitive concerns this week.
Analysts at Wall Street investment bank JP Morgan announced that Ethereum might have to mount a competitive fight back against rival blockchains like Solana, Terra, and Avalanche. All of them provide crypto users, traders, and investors with a more scalable service and, crucially, lower transaction ('gas') fees than Ethereum.