Bitcoin could continue to sink in this risk-off environment
The price of the main cryptocurrencies continues to consolidate in the short term, with BTC/USD remaining close to its symbolic threshold at $20,000. However, the outlook remains bearish in the cryptocurrency market due to significant headwinds for risky assets in the current context of monetary tightening and deteriorating economic outlook.
Indeed, monetary conditions are returning to roughly normal levels after being accommodative for a decade, while the global economic outlook is deteriorating due to monetary tightening, the global energy crisis and health policy in China.
This cocktail of monetary tightening and economic slowdown is historically conducive to volatility and risk aversion, which has been the case on the markets since the beginning of the year. Irrational forecasts are gradually giving way to wiser forecasts, causing the valuation of the most speculative and disconnected assets to plummet, as evidenced by the huge drop in Cathie Wood’s “ARKK Innovation” fund (- 75% since February 2021).
Cryptocurrencies are no exception to the rule. While investors have benefited from negative (or very low) real rates for nearly a decade, they are now finding some of the most attractive returns since 2008. Investors can, for example, secure an annual return of more than 6% per year in the corporate debt market.
BTC/USD daily price chart – key levels