According to investors and analysts, the growing number of cases of the Covid omicron variant in the United States is a primary cause for the decline in Bitcoin prices in December.
“With omicron coming along and the U.S. economy stalling a bit, a lot of macro funds that use bitcoin as this pro-cyclical inflation hedge have decided to take profits throughout December,” – Brian Kelly, CEO and founder of digital currency investment firm BKCM, told CNBC.
After the appearance of the omicron version, investors are reassessing their exposure to risky assets. Ethereum is up more than 400% in 2021, but it is on track to have its worst month since March 2020. Bitcoin is on track to double the S&P 500 this year, while ripple is up more than 200%, although both are down this month.
ESG (Environmental, Social, and Governance) investment and worries about energy consumption have also been a factor in recent crypto drops.
“Today ‘proof of work’ from the [cryptocurrency] mining machines is looked upon negatively by a lot of the investment community because of the energy it consumes, but if you dig deep, much of the energy is energy that couldn’t be used for anything else. Relative to the massive value we are getting from it, the energy I think will become much less of a concern next year.”- Lou Kerner, partner of Blockchain Coinvestors.
In December, stocks that hold or mine cryptocurrencies fell farther than the assets themselves. MicroStrategy has down 21% this month, while Riot Blockchain has dropped 38%. Marathon Digital’s stock has dropped by 31%. In the views of investors, coins and stocks are strongly linked.
“We are on the cusp of a deep understanding by institutional investors of the different companies and what they actually do and the economics of the businesses,” – Kerner said. “It’s still hard for most investors to wrap their head around mining. It’s a small part of the market, so you don’t have a lot of institutional investors devoting massive amounts of time to it. It’s easier for them to just look at it like a basket.”
Brian Kelly is bullish on Bitcoin, believing it will hit $100,000 by the end of 2022, but the Metaverse’s emergence is luring investors away.
“You’ll see a lot of other coins, whether they be in the metaverse, gaming or decentralized finance do really well. The venture capitalists, new money and funds like mine are focused on those early growth opportunities.”