Bitcoin's starts off the new year on a sour note Image Credit: REUTERS/Dado Ruvic/Illustration

Bitcoin's starting off the new year on a down note.

The largest digital coin by market value fell as much as 2.8 per cent during Monday's session to $45,715. That means it was trading below its average price over the last 200 days, which currently stands at $47,923. The session is setting Bitcoin up for its seventh consecutive close below that threshold, which is watched closely by chartists.

"Bitcoin is acting just like another risk asset," Steve Sosnick, chief strategist at US-based Interactive Brokers LLC, said. "In some ways, it's a victim of its success because so much risk capital has moved into Bitcoin and to a certain extent other cryptos."

Technicians are also watching Bitcoin's Relative Strength Index, or RSI, which is nearing oversold territory.

Strategists at Oppenheimer say Bitcoin's heightened volatility makes it difficult for them to trade. Still, if they use its 200-day moving average stat in the same way they utilize it for stocks, then they foresee it could break above $65,000 - as long as it maintains $46,000, they said in a note.

Cryptocurrencies overall finished 2021 on a sour note - Bitcoin fell roughly 19 per cent in December, one of its worst months of the year. The Bloomberg Galaxy Crypto Index, which tracks a handful of some of the largest coins, lost near 23 per cent in that period.

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Many analysts say that going forward, crypto prices are likely to recover.

Crypto prices are likely to recover soon?

"We wonder if portfolio window dressing had an impact on keeping the asset class down throughout most of December," wrote Matt Maley, chief market strategist for Miller Tabak + Co. "And that this same issue just might help it bounce back nicely in the New Year."

That's a refrain often heard in the crypto sphere - as fast as prices dropped, they can recover just as quickly too. Those watching its wild gyrations say the volatility is par for the course and is, by now, a given in the world of digital currencies.

"I like crypto, I like Bitcoin," Bulltick's Kathryn Rooney Vera said on Bloomberg TV. "It belongs in a piece of the alternatives portfolio. We're not saying take your whole portfolio and slap it in Bitcoin - what we're saying is have a piece of your alternatives portfolio in cryptos."

Many analysts say that going forward, crypto prices are likely to recover. Some see much further upside, with strategists predicting $90,000 or $100,000 in the cards this year.

"As we start to look ahead and say what's the future for crypto, it likely is brighter than the month of December manifested," Art Hogan, chief markets strategist at National Securities, said by phone. "But it's never going to be a smooth path and it's certainly going to be fraught with a great deal of volatility."

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Bitcoin ended 2021 with a rocky finish

Bitcoin ended 2021 with a rocky finish

The largest cryptocurrency by market value closed out December with a 19 per cent drop, its largest monthly loss since May. That was also its worst December since 2013. And its 60 per cent advance in 2021 marked its smallest gain for an up year since 2015, when it climbed 36 per cent. On Friday, the coin fell as much as 3.5 per cent before rebounding somewhat to trade at $47,300.

That Bitcoin had a breakout year, though, is now settled debate after the token and the wider crypto world spent 2021 pushing further into the mainstream and capturing more attention from finance professionals and the public at large. Those watching Bitcoin's daily gyrations say all of it is par for the course - the coin is famous for its volatility and this year proved just as choppy as any other.

"We're seeing a little more volatility," Chris Gaffney, president of world markets at TIAA Bank, said in an interview. "It's a speculative asset."

Bitcoin started 2021 with a bang, quickly notching new highs as more investors - especially big-name Wall Street institutions - became interested in it as a speculative asset or as a hedge against rising prices. Other positive developments, including the launch of the first US exchange-traded fund tracking Bitcoin futures, also helped propel it higher over the year.

Globally, more than $20 billion was invested in crypto exchange-traded products through November, a record, according to ETFGI, a research and consultancy firm. Assets increased roughly 550 per cent year to date, up from $3.1 billion at the end of last year, the firm said in a report.

"What lifted Bitcoin above $20,000 was this excitement factor that, 'Oh my, it's not just a bunch of kids. It's real. Institutions are going to make strategic allocations in Bitcoin because it's a limited supply, it's only going to go higher,'" said Michael Purves, chief executive and founder of Tallbacken Capital Advisors. "The next stage of this sort of awkward adolescence of Bitcoin is going to require something more than that."

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Bitcoin to continue to perform well

Bitcoin to continue to perform well

Bitcoin has had a rough time since hitting an all-time high of near $69,000 in early November. Partly, analysts say, it's being buffeted by concerns over greater regulatory scrutiny around the world. But it's also losing dominance to other lesser-known upstarts that have gained in popularity as the crypto ecosystem expanded this year. Among the biggest cryptocurrencies, Binance Coin posted the best return, adding roughly 1,300 per cent in 2021.

Matt Maley, chief market strategist for Miller Tabak + Co., says Bitcoin's year-end volatility might be a result of investors jettisoning non-winning trades.

"Institutional investors like to pump up their large holdings at the end of the year and scale back (or in some cases, dump) their losers," he wrote in a note this week. "Well, guess what? A lot of institutional players were late to the game on Bitcoin and other cryptos this year."

Bitcoin's gains for the year remain impressive, and it isn't faring as poorly as it has during past drawdowns. Its 30 per cent drop from its high is not as drastic as other swoons it's experienced. The average decline from a record sits at around 46 per cent, according Bespoke Investment Group. Bitcoin's mid-year pullback was even worse, with the coin down more than 50 per cent at its low.

Looking ahead, many investors - in classic "crypto-to-the-moon" fashion - are expecting prices to recover and eventually reach new highs. The wild swings in the market suggest it could go either way.

"We expect Bitcoin to continue to perform well. Tailwinds include sustained inflation and broader investor adoption from continued education as well as the broader macro environment," wrote Martin Gaspar and Katherine Webb at CrossTower Research. "Investors are increasingly understanding the unique value-add of Bitcoin. As long as it continues humming, we believe the price will follow."