Crypto

Crypto rally appears to fizzle as 2021 comes to a close

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Bitcoin and Ethereum prices continued to drop on Wednesday (Dec. 29), extending Tuesday’s slump amid fears of a tougher regulatory stance the United States Federal Reserve could take on cryptocurrencies in 2022.

Bitcoin was trading 1.38% lower at $46,897.62 as of 8:14 am ET. A minute later, Ethereum lost 1.6% to go for $3,732.59. Other tokens also got hit. Cardano and Solana lost more than 8% each, and Polkadot fell nearly 6%, according to CoinGecko.

Demand for the most speculative investments has waned as 2021 comes to a close, in part as the U.S. central bank pulls back on the exceptional stimulus that helped to lift a variety of assets this year.

“There has been a lot of chatter that the widely-expected Federal Reserve ‘tapering’ could prick the bitcoin and crypto bubble. Tapering is the gradual slowing of the pace of the Fed’s large-scale asset purchases” Raj A Kapoor, Founder, India Blockchain Alliance, told The Economic Times.

Earlier this month, executives from eight major cryptocurrency firms, including Coinbase Global CFO Alesia Haas and FTX Trading CEO Sam Bankman-Fried, testified before the U.S. House Financial Services Committee.

The hearing marked the first time major players in the crypto markets testified before U.S. lawmakers, as part of a policymakers’ effort to understand fast-growing digital assets — and how to regulate them.

According to a Wall Street Journal report, one of the main concerns among those lawmakers wary of crypto is that its rapid growth poses a threat to financial stability, is rife with fraud and manipulation, and isn’t environmentally friendly since mining virtual coins uses lots of real energy.

Bitcoin change
(Source: Bloomberg)

Bitcoin has retreated some 18% this month, is on pace for its worst decline since May and remains well below its all-time high of $68,790 on Nov. 10.

Still the world’s most popular cryptocurrency is ahead of traditional assets including world stocks and commodities and today the crypto market capitalization is estimated at $2.5 trillion, more than double a year ago.

Cryptocurrencies are in growing acceptance. In the most famous example, El Salvador became the first country to declare Bitcoin legal tender. And the first bitcoin-linked exchange-traded fund made its debut on the NYSE.

The digital assets aren’t tied to any regulatory authority, and they freely trades outside standard hours for stock exchanges—giving investors the prerogative to buy or sell it whenever they please.

But surging inflation, worldwide supply-chain disruptions and a global economy still vulnerable to uncertainty fueled market volatility, especially toward the end of the year.