Bitcoin Clings to $40,000 as Investors Flee Risky Assets

The crypto market is once again at a crossroads.

In particular, will bitcoin resume its rally or are too many headwinds pushing it lower?

Right now the most popular cryptocurrency is clinging to the psychological threshold of $40,000. At last check it was hovering around $40,225, according to CoinGecko. It recently briefly dipped below $40,000 before rising again.

The short-term direction is unclear. Some experts estimate that bitcoin will drop to $37,000 in the next few days while others see it jumping to $47,000.

Ether, the second-largest digital currency by market cap, was down, falling 1.5% to $3,026 in the past 24 hours despite positive news surrounding the Ethereum project from which the alt coin originated.

Ethereum is a blockchain that enables developers to develop different applications offering financial services, entertainment, business management, and more.

The platform will make a major change by the end of June. This change relates to the mechanism for validating transactions and creating tokens. Ethereum will go from proof of work, which consumes a lot of energy, to proof of stake, which is considered more environmentally friendly. This transition will also reduce transaction costs (gas fees) and speed up operations.

Why Are Bitcoin and Cryptos Taking a Beating?

The crypto market has always been very volatile. Prices can jump sharply one day and the next day fall just as much. Investing in crypto is like taking a plane in bad weather: Bumpy air is to be expected at any time. Investors have to tighten their belts and sit tight.

That said, the current movements reflect the fact that crypto is now moving in sync with the stock market and more particularly with the Nasdaq Composite Index, which includes a large number of tech companies.

Tech is a growth industry. Tech stocks do well when the economy is doing well, simply because investors are ready to buy the promise of future profits and growth when things are going well. But as soon as things go even a bit south and growth prospects are called into question, investors rush to limit their exposure to riskier assets.

The current economic situation pushes investors toward caution: Inflation is at its highest in 40 years, and the Federal Reserve has started to raise its rates and will be more aggressive in May, analysts anticipate. As a result, loans are becoming expensive. But tech needs money to invest in future products and services.