Yellen Delivers Another Blow to Cryptocurrency Market
Bitcoin price has been moving higher in a continuous fashion since October to gain nearly 500%. The rally likely ended on Sunday when the world’s largest cryptocurrency posted a fresh record high of $58,354, according to TradingView data.
The BTC price is now trading around 19% lower on the week and is on the way to record the worst weekly performance since the pandemic-driven selloff in March 2020.
However, comments from Treasury Secretary Janet Yellen and cryptocurrency supporter Elon Musk paved the way for a pullback in Bitcoin price. A few days ago, Yellen delivered a first round of negative comments targeted at BTC, describing it as a “highly speculative asset.”
“I think it’s important to make sure that it is not used as a vehicle for illicit transactions and that there’s investor protection,” she added.
In a similar manner, JP Morgan’s analysts described BTC as an “economic side show” that shouldn’t be used as a hedge against stocks. Furthermore, they see Bitcoin’s current value as too high.
“Crypto assets continue to rank as the poorest hedge for major drawdowns in equities, with questionable diversification benefits at prices so far above production costs, while correlations with cyclical assets are rising as crypto ownership is mainstreamed,” analysts wrote in a memo sent to clients.
In another blow for Bitcoin, Yellen told CNBC yesterday that the world’s largest cryptocurrency can’t be widely used as a transaction mechanism.
“To the extent it is used I fear it’s often for illicit finance. It’s an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering,” she added.
She also reiterated her comments from a few days ago that BTC is “a highly speculative asset and you know I think people should be aware it can be extremely volatile and I do worry about potential losses that investors can suffer.”
“I think it could result in faster, safer and cheaper payments, which I think are important goals,” Yellen concluded.
Elon Musk, who is a big supporter of cryptocurrencies, also stated that valuations of Bitcoin and Ethereum (ETH) “seem high.”
A pullback in Bitcoin price yielded a sharp correction in the cryptocurrency market as well. Ethereum price is trading about 30% off the highs after it surpassed the $2,000 handle for the first time ever.
Another round of negative comments from Janet Yellen has facilitated a deeper pullback in Bitcoin price, which now trades about 19% in the red this week.
About the Author
Luigi Wewege is the Senior Vice President and Head of Private Banking at Caye International Bank. Outside of the bank, he serves as an instructor at the FinTech School which provides online training courses on the latest technology and innovation developments within the financial services industry. Luigi is also the published author of "The Digital Banking Revolution."