Over the past month, YoY Bitcoin returns turned negative. So what happens next with the digital currency, and why is it under pressure?
Bitcoin bulls are challenged as the digital currency delivered negative YoY returns over the past month. It now tests support in the $40,000 area after only a few months ago trading at record-high levels close to $70,000.
Bitcoin hodlers probably have a longer time horizon on their investment, but still, seeing the cryptocurrency plunging in an environment when the US dollar printing was the highest on record must be difficult to take.
What caused Bitcoin’s tumble and why do investors flee? Here are two explanations: more institutional investment hurts performance and crypto scams turn investors away from the crypto market.
More institutional involvement hurts performance
For a long time, investors in the crypto market have wanted more institutional involvement. More adoption, they argued, will unleash the power of Bitcoin.
Their wish came true.
Institutional investment rose significantly, but the correlation to the broader market tightened with it. How else to explain the bearish reaction to a hawkish Fed on the FOMC Minutes released last week? In other words, the diversification benefit erodes, thus making Bitcoin a less attractive investment.
Scammers turn people away from the crypto market
Another reason for Bitcoin’s underperformance comes from the number of scams in the digital space. A recent article published by CNBC at the start of the year highlighted that in 2021 scammers took home $14 billion in cryptocurrency. Moreover, losses from crypto-related crime rose close to 80% in one year alone.
It is hard to outperform in such an environment and, as a result, people turn their backs away from crypto projects. Coupled with the intensive energy cost for mining Bitcoin in an era when governments invest in green projects makes an investment in Bitcoin even less attractive.
All in all, Bitcoin bulls have a hard time as the cryptocurrency struggles to hold above $40,000. Suppose the US dollar keeps strengthening as a result of a more hawkish Federal Reserve. In that case, Bitcoin will have a hard time performing as institutional investment turned it into just another financial asset correlated to the broader market.