Interactive Investor

Bitcoin’s bounce is characteristic of the ‘Wild West’ crypto market

13th May 2022 10:26

Myron Jobson from interactive investor

interactive investor comments on cryptocurrencies.

Are we headed towards a recovery or a ‘crypto winter’?

Victoria Scholar, Head of Investment, interactive investor, says: “Cryptos are bouncing back with bitcoin breaking back above resistance turned support at the psychological $30,000 level, while ether is also enjoying strong gains. However, bitcoin is still down by more than 55% since the November highs, with losses accelerating since the start of April.

“Equity market losses, concerns about inflation, and instability in the stablecoin market have sent shockwaves throughout the crypto complex this week, prompting fears of a ‘crypto winter.’

“However - with the Nasdaq managing to close in the green last night, and the S&P 500 narrowly avoiding a slump into bear market territory (down 20% from the recent high), opportunistic buyers have scooped up cryptos at a discount overnight. $30,000 remains the key technical level to watch on bitcoin, with a sustained drop below potentially paving the way for further declines. 

“Recent price action serves as an important reminder of the wild swings that are characteristic of the crypto market that can on the one hand can create outsized gains for traders and investors but can also lead to damaging losses.”

A timely reminder of the risks

Myron Jobson, Senior Personal Finance Analyst, interactive investor, adds: “Bitcoin and other cryptocurrencies have recovered some lost ground, providing a much-needed reprieve for crypto investors after weeks of decline. Whether the uptick in performance is indicative of a full-scale recovery remains to be seen.

“What direction the price of bitcoin and other cryptos will follow is anyone’s guess, but they remain a swashbuckling ride for investors. The recent crypto slide is a timely reminder that shows that just because something has perceived value, it doesn't mean it can't end up massively overvalued and in a bubble.

“ii research* found that 45% of young adults aged between 18 and 29 have made crypto their first investment of choice, with an alarming number funding this through a cocktail of credit cards, student loan, and other loans. The reason this is such a concern is that many have been hit with a double whammy of investment loss and a deeper plunge into debt. And of course, the debt issue is made worse with rising interest rates.

“Whatever your approach to risk, cryptocurrency should be treated with caution.”

Reddit round two?

Victoria Scholar, Head of Investment, interactive investor, explains, “It’s not just crypto making a comeback. So-called meme stocks have had a surge in light of the current market volatility for no fundamental reason on Thursday, with GameStop (NYSE:GME) and AMC (NYSE:AMC) staging gains.

“After the initial enthusiasm, these Reddit-favourites pared gains into the close and are still nursing heavy year-to-date losses. The move higher in these stocks could have been exacerbated by a short squeeze, which is when short sellers are forced to buy the stock back in order to avoid painful losses on their short positions when the market rallies.

“The meme stock jump highlights the erratic price action that markets are struggling with at the moment, with sharp volatility across equities, little directional certainty, and outsized moves in riskier assets like cryptos, meme stocks and tech companies.”

To speak to Victoria or Myron, please do get in touch.

Notes to editors

* The poll of 1,000 UK adults, aged 18 – 29, was conducted by Opinium for interactive investor between 21 – 25 June 2021.

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