COVID Variant and Stimulus Tapering Wreak Havoc on Markets – Weekly Roundup

COVID FUD

For nearly two years now, COVID has reared its ugly head time and time again.  Unfortunately, despite the widespread distribution of vaccines, there are now reports of another new variant.  This one is touted as being potentially more transmissible, and vaccine resistant as it is so different from the original strain.  Making this new strain somewhat worrisome is that it has already managed to be detected in not only South Africa and Botswana, but Hong Kong as well.

While it is debatable is all of this warrants new fear – or is simply a bunch of sensationalized headlines – markets have nonetheless reacted in a highly negative fashion.  This includes not only digital assets, but both the U.S. dollar and traditional stocks.

Tapering

Another fear that has played a role in the recent downswing being seen among digital assets, is that of stimulus tapering.  It is believed that in the coming months, the Federal Reserve will cut back its spending by half.  The main reason for this is due to inflation levels which are beginning to run rampant – something the Bitcoin narrative often highlights as one of its most important qualities (anti-inflation).

Simply put, rising interest rates and a lack of government spending meant to keep inflation in check is expected to put a damper on perceived high-risk assets like Bitcoin.

Market Reaction and Metrics

So what effect has the above news had on Bitcoin and the broader digital asset market?  Just look below.

While BTC appeared to be rallying late in the week, attempting to reclaim the $60,000 marker, this upwards pressure was the victim of poor timing.  Once a plethora of sensationalized news articles hinting towards another wave of COVID were released the effect was near immediate, resulting in a jarring drop of over $5000 within hours.  At time of writing, BTC appears to have found a floor around roughly $54,000 as buyers begin taking advantage of what they are hoping is a short-lived discount.

Regardless of the price direction, there is one interesting metric which highlights the growing reach of Bitcoin – transaction volume.  Over the past 24 hours a new record was set with the Bitcoin network seeing over $36 billion of on-chain settlements.

With history often repeating itself, some have begun looking to past black-Fridays in an attempt to guess what will come next.  Interestingly, last black-Friday presented with a similar crash before roaring back in the coming weeks to what was at the time a fresh all-time-high.  Here's hoping!