One of the world's largest crypto exchanges foresees bitcoin entering a bear market this year
- Huobi writes that bitcoin will likely depreciate this year in response to the Fed's tapering in November.
- Tapering could cause global liquidity to shrink and affect bitcoin's price.
Cryptocurrency exchange operator Huobi expects that bitcoin is likely to depreciate this year as markets react to the US Federal Reserve dialing back on asset purchases.
The Fed started in November to slow down its purchases of new assets, including bonds and mortgage-backed securities. This process is known as tapering.
In a report released Friday, Huobi Research Institute, the research arm of Huobi, wrote that tapering is likely to cause a reduction in global liquidity — or money pumped into the global economy — this year. Like many other high-risk assets, Bitcoin is often sensitive to changes in liquidity, the report notes. Therefore, Huobi predicts, the cryptocurrency will face a "bear market," where the security faces a prolonged price decline.
In addition, a potential rise in interest rates is likely to put additional pressure on the price of risky assets, including bitcoin. "The possibility of bitcoin depreciation cannot be eliminated," the report said.
Huobi is listed in Hong Kong but based in Seychelles. It's one of the largest crypto trading platforms in the world, frequently processing more than US$1 billion in trading volume daily. The report, titled "Global Blockchain Industry Overview and Trends 2020-2021 Annual Report," was released in collaboration with the Blockchain Association Singapore.
Bitcoin, the largest cryptocurrency by market value, saw its price fluctuate wildly in 2021. It hit a record high of almost $69,000 in November, but that has since eased, and bitcoin has hovered around $40,000 for the last two weeks.