Cryptocurrencies rebounded strongly on Tuesday, breaking a string of heavy losses over the previous few days and defying broad weakness on the stock market.
Financial markets have experienced wild volatility as investors await the outcome of the Federal Reserve’s first policy meeting of the year this week. Investors will scour policymakers’ comments to gauge how quickly the central bank is likely to raise interest rates this year and withdraw the economic stimulus put in place during the depths of the pandemic.
The era of ultra-low interest rates and benign inflation appear to be coming to an end, which has rattled the asset classes that benefit most from this combination, such as technology stocks and speculative assets like bitcoin. The Nasdaq 100 index of tech stocks is now firmly in correction territory, while bitcoin is now worth less than half of what it was when it hit a record of around $69,000 in November.
Leading digital currency bitcoin was up 8% in the last 24 hours to $36,455, having hit a six-month low below $33,000, which analysts said may leave it vulnerable to another selloff. Ether was up 7% on the day at around $2,417, but was still nursing a weekly loss of 23%, according to CoinMarketCap.
“As seen last week, the risk-off nature of markets at the moment is not isolated to equities. Crypto, basically risk assets on steroids, continues to face headwinds, with bitcoin now down more than 50% from the November peak, and looking ready for a test of the psychologically important $30,000 mark,” Caxton FX strategist Michael Brown said.
Among the altcoins, the cosmos network’s atom token was one of the biggest gainers of the day, up 16% in the last 24 hours to around $35.56.
One of drivers of the outperformance in cosmos for some market watchers was the recent link, or bridge, to the polkadot network, which will allow the two blockchains to exchange data.
Also, an airdrop of atom tokens to users that stake coins on the cosmos network added to the bullish undertone. Cosmos is a proof-of-stake network that relies on users staking their existing coins to provide computing resources that help to maintain the network and process transactions in return for rewards in the form of tokens via airdrops. The greater the reward to those staking their coins on the network, the more users will be drawn to that blockchain.
In spite of the rally on Tuesday, the mood in the crypto market remained cautious. The Crypto Fear and Greed index, a gauge of market sentiment based on a number of metrics, was at 12, its lowest since January 8 and reflecting “extreme fear”. A reading above 40 would indicate “greed”. The index was last at this level in late December.