What Does the Bitcoin Dip in January 2022 Mean?
Since the Cryptocurrency markets peaked in early November, many of the coins were down 30% or more from their highs in early January 2022, and Bitcoin (BTC), after trading as high as $68K, recently traded below $40K for the first time in five months. Is it time to hit the panic switch? Not at all! Investors in volatile markets tend to get hurt only when they do, in fact, panic. Good investors take advantage of the volatility by understanding its root causes, and trading through it. So what caused the significant swings?
In early November, the Fed released some concerning inflation data, and BTC was down $4,000 (over 6%) in just a few hours. Ironically, BTC is seen as a hedge against inflation, so some would have thought it should have gone up, but BTC is still a financial asset, and higher inflation equals fewer dollars to buy things, like more BTC.
Fed Policy Meetings
In mid-December, the Fed had one of their regularly scheduled 2-day policy meetings. When the meeting minutes were released a few weeks later, the comments from the Fed Governors suggested both an aggressive interest rate tightening schedule as well as a plan for the Fed to shrink its balance sheet and significantly slow its bond buying program. The minutes spooked investors, and BTC traded off another 6%. The Fed is scheduled to meet again January 25-26, and the minutes of that meeting will be released on February 16.
Q4 Earnings Reports
Finally, between the Fed meeting and the minutes being released, most large companies will have reported their Q4 earnings along with giving their outlooks for 2022. Given the effects of the pandemic, inflation, supply chain disruptions, etc. many companies are likely to give fairly lukewarm outlooks, which will pressure the stock market and likely the Crypto markets as well.
What Can Investors Expect for the Rest of 2022?
It’s entirely possible that BTC will not only trade below $40K, but it could easily dip below $35K. What to do then? Again, don’t panic. Knowing how and why Crypto is trading off should only give you confidence to continue “buying the dip.” Buying into the volatility in markets under pressure can pay off in better returns over time, so don’t miss out!
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