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What's next for Bitcoin and Ethereum after crypto crash?

Kitco News

(Kitco News) After a 50% drop from their all-time highs, Bitcoin and Ethereum will have to brace for more volatility ahead as the crypto market finds its feet, according to analysts. The long-term outlook, however, remains bullish for cryptocurrencies.

The crypto market is fairly quiet after a wild week, with Bitcoin and Ethereum trading at $36,000 and $2,380, respectively.

The cryptocurrencies' price moves continue to be closely connected to the U.S. equities, which remain under pressure in light of the hawkish Federal Reserve announcement on Wednesday.

"Bitcoin's rollercoaster ride is not over yet as risky assets take a hit on growing expectations that the Fed could be more aggressive this year. The Fed got inflation wrong and the scramble to deliver interest rate hikes this year is sending the best-performing assets during the pandemic tumbling," said OANDA senior market analyst Edward Moya.

The next few months are expected to be filled with choppy trading for crypto assets, stated Moya. "The Fed's aggressive fight against inflation will ease once financial conditions are threatened and that is far away. The next couple of months will remain very choppy for crypto markets, but the fundamentals still support a broadening formation for the top-performing cryptos," he said.

Fed Chair Jerome Powell on Wednesday pointed out that the inflation situation in the U.S. is "slightly worse" than in December as he signaled a rate hike in March.

This macro trigger is currently in the driver's seat for the crypto market, GlobalBlock analyst Marcus Sotiriou told Kitco News.

"The most recent selloff has been particularly due to macroeconomic conditions. The Fed's actions are driving the market at the moment. The Fed does not seem to be too bothered by the decline in valuations. Its main concern is sorting out supply chain issues as they try to combat inflation," Sotiriou said.

Cryptocurrencies and equities will struggle over the next month or two — up until the next Federal Reserve monetary policy meeting in March, Sotiriou noted.

"Trading will be a bit rocky. Institutions will try to protect themselves against a rate hike in March. It is still unclear whether it will be a double rate hike or not. But once people realize that the Fed hiking by 2.5% doesn't change things all that much, the uptrend in the crypto market could restart. The long-term view is still very bullish," he said.

This type of high volatility is nothing new for the crypto space, said CEO Andrew Kiguel, noting that these types of moves are part of a larger pattern.

"Crypto will have another good year. People forget that Bitcoin almost doubled in price in 2021. If you look at increases over the course of the year, it was 60%. Ethereum was even higher. The crypto market is known to hit all-time highs and then correct," Kiguel told Kitco News.

This year, Kiguel sees a separation happening between the bitcoin price and the price of other crypto assets that deal with Web3, such as Ethereum.

"There will be more of a separation coming between bitcoin and Web3 assets. The main catalyst for bitcoin will be regulatory — on the mining front and if SEC permits real spot Bitocin ETF. And Ethereum will be driven by Web3 developments, including the metaverse, crypto gaming, and DeFi," Kiguel said.

In light of this price separation, Ethereum is looking to outperform Bitcoin once again in 2022, Kiguel added. Bitcoin is looking at a move to between $80,000 to $100,000 this year and Ethereum could move up another 400% from current levels.

"Bitcoin is likely to end the year 40-50% higher than it did in 2021. Ethereum will have a much bigger upside because it is completing its transition to proof-of-stake, which will make it much faster and more usable for NFTs, DeFi and the metaverse," he said.

Gold price tumbles $35 as Fed's Powell says inflation 'is slightly worse' than in December, signals March rate hike

Also, the inflation narrative will continue to support bitcoin throughout the year as retail investors and institutions seek out assets that can be used as hedges against rising price pressures.

And with inflation running at four-decade highs in the U.S., Bitcoin's case will resonate even with more investors, Shakepay CEO Jean Amiouny told Kitco News.

"Bitcoin is still going through its adoption phase. It was created as a way for individuals to save money in a decentralized way. Higher inflation shows you that dollars in a savings account is not a way to accumulate wealth. Bitcoin is a return to the norm in some way. Because it is a fixed supply, it is money. It will act as a better savings account," Amiouny said. "Over the short term, the price is volatile. But if you used bitcoin as a savings account for the past decade or even the last couple of years, you are certainly wealthier today than in the past. I very much foresee this to be true in the long term as well."

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