Risk-off also for Bitcoin: tensions on markets

After the Fed’s announcements that kicked off tapering, Bitcoin has been falling for days, and even for the queen of cryptocurrencies, there is talk of “risk-off.” 

What is risk-off

Risk-off is a term used more in the stock market than in the cryptocurrency market. It indicates the presence of strong economic, political or financial tensions that lead investors to bet on low-risk assets. In this case, strong exits of liquidity from the stock markets occur, particularly among riskier assets, to move towards assets considered safe, including gold, German bunds, and currencies such as the Swiss franc or Japanese yen. 

If Bitcoin were digital gold, one should infer an increase in its capitalization as well, but this is not happening; rather, the price of BTC is down. 

Risk-off tensions on Bitcoin

Bitcoin these days is suffering like the stock markets from the Fed’s choices. The US central bank has kicked off tapering, or the gradual reduction of economic stimulus that has supported the economy in these almost two years of the pandemic. 

The point is that the Omicron variant is turning the tables again and is leaving markets and investors in an environment of great uncertainty.

In several countries, the possibility of new lockdowns is becoming more and more concrete, with inevitable consequences on the economy. It is also feared that vaccines cannot stop the spread of the new Covid-19 variant.

As if that wasn’t enough, in the US, the $1.7 billion Build Back Better social plan has come to an abrupt halt in the Senate because Democrat Joe Manchin has questioned the contents of the proposal. 

In addition to all this, there is another factor that is causing tension, and that is the cut in the loan prime rate by the Chinese central bank. 

The measure would serve to give more liquidity to the banking system, but markets have interpreted it as a sign of slowing economic recovery. 

Bitcoin and stock markets today

Against this backdrop, Asian stock markets closed lower, with Tokyo giving up 2.13% and Hong Kong losing 1.93%. 

On European markets, Milan gave up 1.90%, as did Frankfurt, while London dropped 1.11% and Zurich just over 1%. 

After Friday’s declines, the reaction of the US stock exchanges is now expected.  

More pronounced are the losses of cryptocurrencies.

Bitcoin loses 3.2% and goes to $45,700, while Ethereum gives up 4% and goes to $3,780. Among the top 10 by market capitalization, only XRP and Terra are moving in positive territory, just above parity. 

A sign of nervousness that has also swept the cryptocurrency markets.