The crypto market has seen a sharp decline over the past two months, with the total market cap tanking to a ten-month low of $1.6 trillion, also leaving in its wake the debacle of the Terra ecosystem, one of the greatest tragedies of the crypto era.
The decline comes as the Federal Reserve continues to raise interest rates and investors shift their attention back to traditional assets.
The recent downturn in the crypto market can be attributed also to other factors, including interest rate hikes from the Federal Reserve, institutional investors cooling off on crypto following an epic 2021, and concerns about regulation.
The Fed is expected to continue raising rates throughout 2022, which could drive investors back to traditional assets like stocks and bonds—and away from risky crypto investments. Additionally, some institutions are reconsidering their stance on crypto after seeing their portfolios take a hit during this past year’s bull run.
The total crypto market capitalization has fallen to its lowest level in ten months. A further $130 billion has left the space over the weekend resulting in a market cap slump to $1.62 trillion. It has not been this low since early August, according to CoinGecko.
Bitcoin (BTC) and Ethereum (ETH) lead losses again during the Monday morning Asian trading session. Bitcoin has shed to $31,000 at the time of writing, and Ethereum is down 4.2% to $2,443, its lowest price since January.
The declines have come amid another day of massive sell-offs across most major cryptocurrencies, which have seen their prices fall by double-digit percentages over the past 24 hours. This includes Ripple (XRP), EOS, Litecoin (LTC), Cardano (ADA), Tron (TRX), Binance Coin (BNB), Bitcoin Cash (BCH), Monero (XMR), and Dash.
5 Reasons for the fall
1. Fed interest rate hikes
The crypto market has been on the decline ever since the Federal Reserve raised interest rates, which caused a crisis of confidence and the fall of the Terra ecosystem.
The Federal Reserve raised interest rates half a percentage point last week, and Wall Street responded with a stock slump. Crypto markets have followed suit shedding more than 10% or almost $200 billion over the past week.
The Federal Reserve raised interest rates half a percentage point last week, and Wall Street responded with a stock slump. Crypto markets have followed suit shedding more than 10% or almost $200 billion over the past week.
Crypto analysts seem to be divided on whether or not this is a good thing for bitcoin (BTC) and other cryptocurrencies. Some say that increased interest rates are good for BTC because it means people have more money to invest in crypto. Others argue that higher rates will make it more difficult for new investors to enter the market, which could lead to further drops in prices as well as difficulty keeping up with maintenance fees and taxes.
2. Regulatory crackdowns
Governments around the world are cracking down on cryptocurrencies with regulations, bans on exchanges and ICOs, and even jail time for people who break the law. Countries like South Korea and China have banned cryptocurrency trading outright while others like India have taken steps to regulate it more effectively. This has raised concerns that governments may take action against cryptocurrencies in general which could lead to an increase in regulation from other countries as well which could further hurt investor confidence in this space.
3. Institutional interest cooling
The year 2021 was extremely bullish for institutional crypto investment, but that has not carried through to 2022. Big names such as Tesla, MicroStrategy, El Salvador, and several payment platforms got into crypto, driving the momentum and buying pressure.
FUD from big players like Warren Buffett who called Bitcoin “rat poison squared” or BlackRock CEO Larry Fink who said he would never invest in an ETF which is what made them popular in the first place.
4. Speculation bubble bursting
Bubbles form when people expect a certain thing to happen (like using cryptocurrencies as a replacement for cash), which causes them to invest heavily in it. When that expectation doesn’t come true (or at least not as quickly as everyone wanted), there’s nothing left for investors except disappointment and losses—which generates more fear among investors who might have been considering investing in crypto themselves.
An increasing number of people began investing in cryptocurrencies because they saw it as an easy way to get rich quickly. When the price started falling, many people wanted out at any cost.
5. Bull Bear Cycles
According to analysts, BTC could fall to the mid-$20K range and consolidate there for a while before there is any significant upwards momentum again.
The first factor driving this downward trend is the bull/bear cycle. Bitcoin has had four distinct bull/bear markets since its inception more than a decade ago; crypto markets may remain bearish for the rest of this year and into 2023 before turning around again.
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It seems investors are currently weighing their options. Some have decided to wait and see what happens, while others have given up on making money in crypto. If you’re trying to figure out what path to take, then you might want to consider the things that drive crypto prices and whether or not this market will turn around in 2022.
© 2024 Cryptopress. For informational purposes only, not offered as advice of any kind.
