Bitcoin’s value has plummeted after the US central bank’s Federal Reserve (Fed) announced an interest rate hike.
The price of Bitcoin, which reached $70,000 (about 83.48 million won) in early November of last year, traded below $35,000 (about 41.74 million won) at one time on the 22nd (local time) for about two and a half months. It was ripped in half.
The price of Ethereum, the second-largest cryptocurrency by market capitalization, is also falling rapidly this year, dropping about 35%.
According to the Washington Post (WP) analysis of the US, the value of the entire virtual currency market also evaporated by about $1.4 trillion (about 1670 trillion won) during the same period.
It fell from about $3 trillion (about 3578 trillion won) in early November last year to 1.6 trillion dollars (about 1908 trillion won) as of today.
It is generally believed that the cause of such a sharp drop in cryptocurrency prices is the Fed’s anticipation of a rate hike to catch up on soaring consumer prices.
It is interpreted that the money flowed into cryptocurrencies is rapidly escaping at a signal of austerity thanks to quantitative easing implemented to support the economy in the face of the spread of COVID-19.
Matt Marley, chief market strategist at asset management firm Miller Tabak+, pointed out in an interview with the WP that money has flowed into cryptocurrencies such as Bitcoin following the massive quantitative easing, and that prices have skyrocketed in line with investor optimism.
“It’s human nature to think, ‘I’m making money, so this trend continues, and I’m really smart’,” he said.
Cryptocurrency is sometimes recognized as ‘next-generation gold’ in that it is an investment subject that can make a profit when the quantity is limited and the price rises.
However, it is observed that virtual currency has not yet solidified that perception, at least in investor sentiment.
Unlike gold, which increases in value when prices rise, the price goes down.
This means that investors still perceive cryptocurrencies as risky assets such as stocks, not safe assets such as gold or government bonds.
Bob Fitz Simmons, vice president of bonds, commodities and stock lending at Wedbush Securities, said, “I saw inflation and saw the price of cryptocurrencies going up, but I was surprised that they moved in the same direction as the stock price.”
Experts are paying attention to the situation in which cryptocurrencies move in the same direction as technology stocks, as they are regarded as technology stocks such as Apple rather than safe assets.
US stocks have fallen sharply over the past week on expectations that the Fed will signal a rate hike in March at the regular Federal Open Market Committee (FOMC) meeting scheduled for the 25th-26th.
The Dow Jones Industrial Average fell 3.9%, while the S&P 500 and Nasdaq, which focus on technology stocks, also fell 5.1% and 6.2%, respectively.
In line with this movement, as if reflecting investor perception, the price of cryptocurrencies fell more sharply.
According to the Wall Street Journal (WSJ), “When the stock price goes down, so does Bitcoin.” This phenomenon is becoming more and more common.
On the other hand, cryptocurrency price volatility is also affected by regulations from major governments.
Russia’s recent push to ban all mining and trading of virtual currency, and tightening taxation on virtual currency in the United States, Japan, and Germany are also pointed out as variables driving the price drop.
(Photo = Yonhap News)
