The last few days have been especially bad for Bitcoin, but the last six months have been no picnic either.
While the crypto market has always been incredibly volatile these past few months, and especially this last week, have been an exceptionally bad time for it.
In the last week, Bitcoin’s price has dropped by 20% for a current low of $34,784 USD ($48,300 AUD). This means that Bitcoin has experienced a decline of 50% since its November all time high of $69,000 USD ($96,000 AUD).
That’s just Bitcoin though. Ethereum, the second most valuable coin, dropped by 27% when compared to just last week!
Overall, the crypto market has lost $1.4 trillion USD ($1.9 trillion AUD) in just two months after its $3 trillion market cap in November.
This is coming about as investors have dumped shares in tech companies on the expectation that the US Federal Reserve will soon rein in the pandemic monetary policy in order to combat inflation.
According to the Financial Times, investors are forecasting the US Federal Reserve to raise interest rates three or four times this year. This has sent bond yields surging. Now with the possibility of higher yields from low-risk assets like these bonds, the speculative investments, like crypto, looks far less appealing.
Adding to the crypto market’s troubles is the Russian central bank drafting proposals to ban all cryptocurrency trading and mining. This is a huge problem as Russia is one of the world’s largest centres for crypto mining. If these proposed regulations go through banks would be blocked from investing in cryptocurrency and forbidden to exchange the cryptocurrency for traditional currencies.
According to the Russians, the rapidly rising value of cryptocurrencies “is defined primarily by speculative demand for future growth, which creates bubbles” and they “also have aspects of financial pyramids, because their price growth is largely supported by demand from new entrants to the market.”
This coupled with China’s blanket ban on cryptocurrency means that the market is in some trouble. How much trouble? We have yet to find out.
If crypto is reliant on new entrants into the market to be successful, then that will also cause some issues. As head of research at Melbourne-based market analyser Pepperstone, Chris Weston, told The Australian that no new people are getting into crypto because easy gains don’t seem like a reality anymore.
“It’s just going down and down, and you’ve got to ask yourself, why would you buy now?” said Weston. “You don’t buy when it’s going down; you wait for the price to stabilise.”
CEO and Co-founder of Mudrex, Edul Patel, told the Economic Times, “The downward trend is likely to put investors in a chaotic situation. The fall of significant cryptos can be attributed to lower demand, inflation, and seasonality. The coming week would be vital for the crypto spectrum.”
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