Why Bitcoin And Ethereum Are The Riskiest Assets in Your 2022 Cryptocurrencies Investing Portfolio?

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Several cryptocurrencies, including bitcoin and ethereum, have seen their prices fall. This is due to the expectation of a quicker timetable for raising interest rates by the Federal Reserve and the prospect of more regulation and oversight. The prospect of more regulation has led some investors to sell out of their positions in cryptocurrency, which could also be contributing to the price drop.

Several cryptocurrencies, including bitcoin and ether, slumped with the broader tech selloff, cementing their reputation among investors as a risky asset that is easily dumped during market stress.

Minutes from the Federal Reserve showed officials are considering a faster schedule for raising interest rates this year, which triggered the drops. In a rising interest rate environment, holding volatile investments that produce little income becomes less attractive than holding government bonds. 

At 5 p.m. Thursday, Bitcoin traded at $43,114.48, down roughly 6% since the release of the December Fed minutes on Wednesday. In the week since the release, Ethereum, the second-largest cryptocurrency by market value, fell by 8.4%. Bitcoin is at its lowest 5 p.m. ET level since late September and far off highs hit in November.  

“Bitcoin acts like a risk asset,” says Noelle Acheson, head of market insights at crypto lender Genesis Global Trading. “Short-term holders are those who are trading and are closest to exiting the market.”

The market for Bitcoin is divided between long-term investors who view the digital currency, which is mined by computers, as a store of value, and hedge funds and other money managers who use it when markets are booming.

Currently, bitcoin’s market is split between long-term holders who see the digital currency as a store of value, and hedge funds and other money managers who view it as a way to make money in times of market euphoria, Ms. Acheson said.

Last November, bitcoin’s dollar value reached nearly $70,000 as broader markets rallied and traders bet the first U.S. exchange-traded fund linked to the cryptocurrency would draw investors and push its price even higher. At the end of last year, bitcoin’s rally cooled, with prices edging down.

“It had been range bound and seemed to be waiting for a catalyst one way or another, and the hawkish Fed was the catalyst,” said Craig Erlam, senior market analyst at trading firm Oanda. 

There is a reputation that Bitcoin and other cryptocurrencies are volatile and often fluctuate based on news of their acceptance by mainstream financial institutions, rumors, or celebrity pronouncements.

The purchase of bitcoin by Tesla Inc. and the debut of cryptocurrency exchange Coinbase Global Inc. both increased bitcoin’s price last year.

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