The cryptocurrency market is not in a very good moment and it is certainly worrying many investors. While many are holding back in another turbulent market time, others are threatening to sell their assets. There are three likely reasons for this recent drop that has brought the total crypto market capitalization to a 10-month low.
“The total crypto market capitalization has fallen to the lowest value in the last 10 months. More than $130 billion left the industry over the weekend, resulting in a $1.62 trillion capitalization drop. The value was not this low since August of last year, according to CoinGecko.”
According to analysts, the three reasons for the latest bitcoin crash are: Announcement of high interest rates by the Federal Reserve; Declining institutional interest; Investors seeking more security.
Fed rate hike and correlation with Wall Street
The Federal Reserve (Fed) raised interest rates by half a percentage point in the past week, and Wall Street responded with a drop in its shares. With that, the crypto market followed suit, losing value in correlation to the traditional market. This shows something curious and that does not come from now: Bitcoin is correlated with indices such as the Nasdaq and other traditional ones. Edward Moyaanalyst at firm Oanda, even noted that the index focused on tech industry stocks is down 21% this year, Bitcoin is down 22%too similar to be a coincidence.
“Bitcoin is really stuck in a sideways cycle where it’s just waiting for Wall Street to calm down, so we’re going to see people become more confident to invest. I still think there’s a lot of long-term value potential here, but you’re going to have to have the courage to deal with that volatility,” Edward Moya said.
Decline in institutional interest
Another reason pointed out by analysts is that we are seeing a “rebound” of what happened during 2021, when a great institutional interest ended up taking the price of Bitcoin to 69 thousand dollars, primarily with investment from MicroStrategy. Besides, US regulators also allowed Bitcoin futures ETFs to start circulating, which was extremely positive for the price. However, as soon as this interest died down, the buying pressure lost a lot of steam, causing the price to have this rally during 2022. So, the market is now in a “wait and see” mode, where the buying pressure sale is increasing and giving the low prices we are seeing.
Investors looking for safer options
With all the movement after the pandemic and concerns in the global economy, it seems that investors are also looking for safer options in traditional assets. According to Chris Klinco-founder of Bitcoin IRA, some cryptocurrency investors are evaluating other options and “re-investing in dollars”.
It is important to note that this is part of a cycle moment, as is common in the crypto market since its inception. So hopefully the tide is out, but not always.