The cryptocurrency market continues to be under pressure due to the hawkish statements from the FOMC meeting and ongoing tensions between Ukraine and Russia 

By NURUL SUHAIDI / Pic BLOOMBERG

THE crypto market is in shambles as bitcoin failed to maintain support above the US$40,000 (RM167,600) level last week and is down 14% over the last seven days. 

Luno Malaysia country manager Aaron Tang said the cryptocurrency market continues to be under pressure due to the hawkish statements from the Federal Open Market Committee (FOMC) meet- ing as well as ongoing geopolitical tensions between Ukraine and Russia. 

Bitcoin’s fall comes as major global equity markets continue to decline in January with the Nasdaq last week saw its worst week performance-wise since March 16, 2020, Luno noted in its weekly update report. 

The growing market uncertainty has led bitcoin to become highly correlated with the stock market, challenging the asset’s digital gold narrative. 

Overall, the wide-reaching asset sell-off seems to be caused by growing macro uncertainty. 

“The broad sell-off in the cryptocurrency has cut the total market cap of the cryptocurrency sector in half, with certain altcoins nearing an 80% drawdown from their 2021 highs. 

“Although bitcoin’s trading volume has been quite active in the past week, many market participants are still on the fence with the current volatility given the nature of the asset class,” Tang stated in the weekly report. 

January is described as a hard month for most cryptocurrencies, especially for the smaller ones as measured by market cap. 

“While we are seeing substantial recovery with bitcoin volumes picking up substantially, given the lack of confidence across the spectrum, it may take a while for the market to become bullish again,” Tang said. 

He added bitcoin has performed the “best” with a 26% loss, followed by the Large and Medium Cap indexes with 28% losses. The Small Cap Index is the worst per- former, with a 35% decline. 

Luno warned of a significant price movement as bitcoin’s 30-day volatility was the lowest in more than one year. 

After the recent days’ price action, the seven-day volatility climbed to 4.1% — a relatively high level historically. 

Luno anticipates a period of sustained high volatility and doubting the market is done releasing the pressure. 

Since the US$40,000 support breached after last Friday’s sell-off, bitcoin is back into the US$30,000 range which was last seen in the summer of 2021. 

Bitcoin has declined by 52% from its Nov 10, 2021, historic highs but has mostly outperformed all alt-coins since the peak. 

Bitcoin has found support at US$32,500, but the more critical support levels are at US$31,500 and US$29,000 that are yet to be tested. 

“US$29,000 is a very critical support level for bitcoin. This level acted as support during the January sell-off in 2021 and throughout the summer of 2021,” said the report. 

Luno stated the price decline of bitcoin also affects the on-chain particularly leading to a drop in revenue among miners. 

The transaction fees would also decline while the daily transaction volume explodes. “Transaction fees per day are sitting below US$400,000 — close to the lowest level seen in one and a half years.

“Fees’ low share of miner revenues can be problematic as the block rewards will be reduced in the future. 

“Difficulty at an all-time high and a lower bitcoin price means that bitcoin miners’ profit margins are under pressure,” the report noted. 

As for the other blockchain activity, the non-fungible token (NFT) market on Ethereum (ETH) is holding strong despite the broader market downturn over the last week. 

Luno noted while ETH may be down 25.5%, the amount of ETH exchanged for NFTs in crown collections has stayed relatively consistent. 

Over US$4 billion worth of NFTs have been traded on LookRare since the platform launched just 16 days ago, and trading volume has continuously surpassed that of OpenSea — the NFT marketplace leader.