If you have ever wondered why the cryptocurrency market is in the red, there are many possible reasons. Economic uncertainty, Inflation, Rising interest rates, and Evergrande’s financial troubles are all possible factors. There are other reasons as well, such as a lack of regulation and a growing interest in digital ownership and property. But regardless of the causes, it is important to understand the fundamentals of the crypto market. The following are some of the most common and most relevant:
While cryptocurrencies are thriving, they are not immune to the effects of economic uncertainty. In a world of sky-high inflation, central banks have been attempting to curb prices by raising interest rates. Most recently, the Federal Reserve raised its key lending rate by half a percentage point, marking the largest hike in over twenty years. Combined with the recent Ukraine war, investors have been worried about the impact of rising borrowing costs and inflation.
Global uncertainty has also been a significant factor driving the cryptocurrency market down. Concerns over Trump’s election, China’s response to higher tariffs on U.S. goods, and the recent coronavirus attack have weighed on stock markets. While the virus is quickly recovering, uncertainty is still weighing heavily on the market. Meanwhile, the interest of institutional investors in the crypto space has increased. As a result, BTC prices are falling.
One of the biggest concerns for investors about cryptocurrencies is inflation. It has eroded the dollar’s value over time and investors are seeking assets that outperform inflation. Cryptocurrency is a relatively new investment asset class and as such, it has less risk than many other types of securities. But it’s still important to understand what drives the price of a cryptocurrency. Below we’ll examine the impact of inflation on the cryptocurrency market.
Inflation has become one of the biggest reasons why cryptocurrencies have plunged in recent days. According to the CPI, prices have increased 8.6% a year, which is a four-decade high. That means prices are likely to rise for quite some time. The recent market slump has affected many tech stocks, which were among the worst-hit. While some cryptocurrencies have been positioned as inflation hedges, others aren’t living up to their lofty ambitions.
Rising interest rates
A new survey has revealed that investors are more pessimistic about the future of the crypto market than they have been in 30 years. The survey of 260 investors shows that 73% of the respondents think the economy will deteriorate in the next year and that inflation will fall, but will remain high by historical standards. This bleak outlook is driving investors to sell crypto assets and trim their stock portfolios. Despite this bearish outlook, the market may soon recover.
Moreover, the rising interest rates will be difficult for speculative assets such as bitcoin. Increasing interest rates will affect borrowers’ earnings, while at the same time provide better returns for lenders. Already, rising interest rates have wreaked havoc on stocks of “growth” technology companies. While crypto has managed to avoid the worst of these developments by some metrics, rising interest rates will undoubtedly hurt the crypto market.
Evergrande’s financial problems
There’s no denying that the collapse of the cryptocurrency market is being driven by a global selloff in risk assets. Evergrande, the second largest property developer in China, is in the process of filing for bankruptcy and has incurred debts worth about $300 billion. Evergrande’s financial woes have prompted concerns about the entire property sector in the world’s second-largest economy. Worries about the company’s debts have led to a steep drop in Bitcoin’s value, which was down around $44,000 by Monday morning’s UTC time.
The Chinese company has $200 billion in assets but nearly $300 billion in unpaid debt. That is roughly equal to the entire assets of Lehman Brothers, the failed U.S. bank that was widely diversified across industries. As it turns out, Evergrande’s debt is held by banks around the world, making it a particularly significant concern at this point in the crypto market’s history.
Despite the recent collapse of the TerraUSD, hopes of a Terra revival are alive and well. However, without a miracle, Terra’s ultimate demise could be a long way off. This article was written by crypto investor Aaron Brown for Bloomberg Opinion. It also contains information provided by Terra co-founder Vildana Hajric and Sidhartha Shukla. We’ll look at some of the main reasons for the collapse and the potential future of the crypto market.
TerraUSD, the world’s largest stablecoin, has been in a downward spiral after de-pegging its value to $1. The collapse of TerraUSD comes as the G-7 is preparing to issue a formal call for faster and more comprehensive cryptocurrency regulation. As a result, investors should pay attention to this story to understand how cryptocurrency markets work. Moreover, investors should not overlook the impact of TerraUSD’s collapse on all financial markets.
Chinese government’s ban on crypto exchanges
The recent crackdown in China has led to the shutdown of a number of cryptocurrency exchanges. However, Bitcoin and Ethereum seem to be taking the ban in stride, rising over 15 percent from Friday’s low. According to Craig Erlam, currency analyst for OANDA, the ban has not stopped the Chinese government from banning cryptocurrency exchanges. In fact, Chinese individuals have continued to buy crypto, even after the government’s ban.
China’s ban on crypto exchanges may be intended to prevent capital flight. Chinese rich have reportedly been using cryptocurrencies to funnel $50 billion overseas by 2020. The Chinese government is already cracking down on its tech and education sectors, but this latest move may be another effort to discourage money from being exported overseas. The ban has also hit the Chinese cryptocurrency market hard. There’s no easy way to predict why China would ban cryptocurrency exchanges, but it could be the reason for its ongoing slowdown.