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Over $200 billion leaves crypto market in a week as sharp volatility continues

Over $200 billion leaves crypto market in a week as sharp volatility continues

The cryptocurrency sector continues to experience heightened volatility, with various assets losing value alongside massive outflow of capital from the general market. 

In the first week of 2022, the market has lost about $230 billion from $2.25 trillion as of December 31, 2021, to $1.9 trillion on January 7, 2022, according to data provided by CoinMarketCap. 

Cryptocurrency sector 7-day market cap. Source: CoinMarketCap

The drain in the capital has been led by mega-cap tokens like Bitcoin and Ethereum. Market analysts have linked the crash to the Federal Reserve tapering measures amid high inflation

The crash began in December after the Fed hinted at more decisive measures to tackle rising inflation, resulting in negative investor sentiment. Some leading cryptocurrencies saw major support levels breached, and liquidation followed. For instance, on January 5, Bitcoin’s price sharply dropped from $46,000 to around $42,000 within three hours. 

However, the volatility accelerated this week after it emerged that the Fed could fast track its planned 2022 interest rate hikes and begin shrinking its balance sheet. Besides the cryptocurrency sector, the equity markets have also been impacted.

Bitcoin leads crypto market capital plunge 

The capital wiped out has been led by Bitcoin, which now dominates the cryptocurrency market with a share of about 40%. The maiden cryptocurrency has generally underperformed alongside a raft of altcoins. The digital currency is now trading at $41,800, plunging over 11% in the last seven days.

Bitcoin 7-day price chart. Source: CoinMarketCap

The latest Bitcoin drop comes almost six months after China announced a crackdown on cryptocurrencies resulting in a major crash. Consequently, Bitcoin hit a low of $29,000 in late July before rebounding.

Worth noting is that the ongoing volatility can go both ways despite having a negative connotation. Although Bitcoin ended the year on a low note, the digital currency was among the best-performing assets with gains of 60%.

Despite the latest Bitcoin crash and the crypto market wipeout, some analysts believe that the price movement is a temporary setback with the view that the asset will make major gains in future. 

As reported earlier by Finbold, Gareth Soloway, the chief market strategist at InTheMoneyStocks.com, said further Bitcoin correction should be expected, stating that the asset is under a nasty head-and-shoulders pattern which might push the price to as low as $20,000.

However, on a long term basis, Soloway believes Bitcoin will trade between $100,000 to $250,000 in the next five years. 

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