The start of 2022 has not been kind to cryptos. Bitcoin’s decline since its November high has wiped out more than US$570 billion in market value, while roughly US$1.17 trillion has been lost from the crypto market as a whole.
This is after Goldman Sachs said Bitcoin could pass US$100,000 if it replaced gold as a store of value, with many other experts also predicting Bitcoin would reach the $100k milestone in 2022.
So far, we are yet to see any kind of growth. So, what's going on?
Bitcoin's (BTC-USD) price is down 19 per cent in the past seven days - the cryptocurrency's worst weekly performance since May 2021, when fears of China's renewed crackdown on cryptocurrency trading and mining sent the market tumbling.
To add fuel to the fire, tweets by Tesla CEO Elon Musk focused public attention on the Bitcoin blockchain network's potential environmental harms.
The price plunge over the past week appears "emotionally charged," according to Katie Stockton, founder of analysis firm Fairlead Strategies.
"Because shakeouts are common, we would await confirmation of a breakdown below cloud-based support (US$37.4K) before taking a bearish long-term stance," Stockton said.
El Salvadorian president Nayib Bukele tweeted on Friday that the Bitcoin-friendly country took advantage of the price drop to buy 410 BTC for about $15 million, adding that "some guys are selling really cheap".
The Bitcoin price hasn't been this low since July 2021.
Another factor in Bitcoin's plummet is Russia’s central bank proposing a blanket ban on the use and creation of all cryptocurrencies.
This is within one of the world’s biggest crypto-mining nations. They said the dangers posed to the country’s financial system and environment were too 'grave' to continue mining Bitcoin.
"Crypto bears the hallmarks of a pyramid scheme and undermines the sovereignty of monetary policy," the central bank said in a report on Thursday.
It also took aim at mining, which it said, "hurts the country’s green agenda, jeopardises Russia’s energy supply and amplifies the negative effects of the spread of cryptocurrencies," creating incentives for circumventing attempts at regulation.
This year, crypto traders appear to be 'pricing in fears' that the Federal Reserve will move quickly over the next few months to tighten interest rates that have been at historically relaxed levels since the pandemic began in March 2020.
With the market already expecting four quarter-percentage-point hikes this year, Goldman Sachs economist David Mericle said the "Omicron spread is aggravating price increases and could push the Fed into a faster pace of rate increases".
The Fed's stimulus, which includes trillions of dollars of money printing, were widely voiced as a reason for Bitcoin's price gains in 2020 and 2021.
This includes Bitcoin's all-time high price of US$69,000 in November.
"One of the bullish drivers for crypto over the last two years has been the surplus of pandemic-related fiscal and monetary stimulus globally, and much of that is coming to an end," David Duong, head of institutional research for US cryptocurrency exchange Coinbase, wrote to investors on Saturday in a report.
The latest shakeout left Bitcoin down to roughly half of that record price, in a stark reminder of just how volatile cryptocurrency markets can be.