Why is Crypto Tanking Right Now?
Cryptocurrency prices have fallen 50% from their previous all-time highs. There are many reasons for this crash. Inflation, Quantitative tightening, and Geopolitical crises are just a few. The most important issue is that investors don’t know enough about these trends to determine whether they are good or bad. If you’re one of the many people who are interested in investing in Cryptocurrency, keep reading to learn more about what’s happening and why Bitcoin’s price is down.
Bitcoin has fallen 50% from its prior all-time high
It’s no wonder that bitcoin is at a low. The market has lost nearly $1.4 trillion in the past two months, and its value is now only about $600 billion. But that’s not to say that bitcoin is doomed. There are still people who support it, arguing that it’s the future of finance, and there are others who just bought crypto as a speculative bet.
The biggest cause of bitcoin’s current plunge is a string of Fed policy changes. The most recent change in Fed policy relates to the tapering of bond purchases. The move is meant to remove the financial system’s stimulus. As a result, bitcoin’s price has fallen 50% from its previous all-time high in November. Despite the recent fall, investors should be careful not to get too engrossed with bitcoin’s price – it’s likely to rise more before it hits $30,000.
As investors focus on the risks of monetary policy normalization, bitcoin is continuing to suffer under pressure from rising bond yields and expectations of a tightening Federal Reserve. After trading near $47,000 early last week, the cryptocurrency plunged through a key technical level of $45,000 last Wednesday. What will happen next? In this article, MV Index Solutions CEO Martin Leinweber discusses the current state of the crypto markets and what to expect from Treasury Secretary Janet Yellen’s speech about digital assets.
Many cryptocurrency proponents once hailed the low correlation between cryptocurrency prices and other assets, but that has changed. Bitcoin and other digital assets have made massive gains over the past two years. They rallied alongside stocks during the stimulus period, which was accompanied by unprecedented stimulus from central banks. However, that hasn’t helped cryptocurrencies’ overall price. While bitcoin is now down more than 50% from its peak in November, ether has gone from nearly $3,000 a month ago to $2,516 this week. Both Bitcoin and Ether have experienced stomach-churning selloffs in recent weeks.
The reason for the crash in the cryptocurrency market could be twofold: investors are worried about inflation and the prospect of another Fed rate hike. The markets have been rattled by the talk of rising inflation, which has affected all asset classes, including crypto. In addition, crypto has recently been hit by the President’s signing of an infrastructure bill into law. This $1.2 trillion legislation, known as the Infrastructure Investment and Jobs Act, includes $550 billion in new spending. The market is reeling from the news of the bill, and many crypto holders have been reducing their positions to minimize the new law’s impact.
Despite the recent rally in crypto, the market has remained under pressure for weeks. This has been due to surging inflation and ongoing economic events – largely stemming from Russia’s invasion of Ukraine. One of the leading cryptos, Bitcoin, has started Monday on a sour note, trading at $30,900. This is down 19% from last week and its lowest level since July 2021.
The recent Russian invasion of Ukraine has upended many assumptions about the direction of the global economy in the short and long term. Historically, geopolitical events like these do not have a significant impact on global stock markets. However, this conflict could bring about a recession in Europe, a concern for U.S. stock market investors. Energy prices are also sky-high, and U.S. households’ savings rates are at their lowest level since 2013.
The conflict in Ukraine has turned the security crisis into a humanitarian and health catastrophe, displacing 4.5 million people in several Ukrainian cities. It is not only affecting the Ukrainian economy, but many other countries in the Middle East and Africa are suffering from severe food shortages. In addition, the conflict is threatening the peace of the world, with a rapid rise in authoritarianism and escalation of war.
As the price of crypto continues to fall, companies that invested in it have been wiped out. Their losses have outpaced those of the major stock indexes. What does this mean for crypto investors? Crypto has been portrayed as either a revolutionary technology that will change the world, or it’s a speculative investment that produces no cash flows. There is no definitive answer to this question. Here are some of the factors that are driving the price of crypto.
The broader reasons for the decline in crypto prices are many. Some people believe that there is a bubble in the market, while others fear that the technology behind the crypto currency is not as advanced as many believe. A few of the reasons why crypto prices are slumping right now include sluggish macroeconomic conditions, the rise in oil prices, and the decline in the technology market. Nevertheless, the underlying technology is still promising.