INVESTORS are bracing for more gyrations in Bitcoin and other cryptocurrencies, as worries over a hawkish Federal Reserve threaten to squelch risk appetite across markets.

The volatility traditionally associated with cryptocurrencies has been on full display in recent weeks. Bitcoin, the largest cryptocurrency, is up by around 33 percent since Jan. 24 and recently traded at US$43,850, rebounding from a tumble that cut its price in half from November’s record high. Its main rival, ether, is up around 45 percent since Jan. 24 at around US$3,200, following a nearly 56 percent nosedive from its record high of US$4,868, also in November.

While proponents of cryptocurrencies once touted their lack of correlation to other assets, Bitcoin and its peers saw huge gains over the last two years, rallying along with stocks as the Fed and other central banks pumped unprecedented levels of stimulus into the global economy. Bitcoin is up 1,039 percent since March 2020 and ether has risen 2,940 percent, though the rallies in both cryptocurrencies have been interrupted by numerous stomach churning selloffs.

Their recent volatility has come amid a broader market selloff driven by investors recalibrating their portfolios to account for a more aggressive Fed, which is now expected to raise rates up to seven times this year as it fights surging inflation.

Worries that an aggressive central bank tightening cycle going forward will hamstring risky assets has made it difficult for some traders to maintain their bullish outlook on Bitcoin and other cryptos, an asset class already identified with intense volatility.

Bitcoin has “really become the ultimate momentum trade and there are so many risks that can trigger a 40 percent drop out of nowhere,” said Ed Moya, senior analyst at Oanda.

(SD-Agencies)