Why Bitcoin, Ethereum and Dogecoin are down again

Why Bitcoin, Ethereum and Dogecoin are down again - shutterstock 1939827760 1Most cryptocurrencies fell today, with the resumption of last week's intense selling due to most of the same concerns over the Federal Reserve's ongoing policies and the economy.

In the past 24 hours, the price of the world's largest cryptocurrency, Bitcoin, has fallen by more than 5%, to around $ 20.780.

The price of the second largest cryptocurrency in the world, Ethereum, fell nearly 7% and the price of the Dogecoin meme token fell nearly 6%.

And so?

Cryptocurrencies haven't fared well as the Fed has taken a hawkish stance this year to tackle inflation. This resulted in an increase in the overnight lending benchmark rate, the federal funds rate, from virtually zero to a range of 1,5% to 1,75% after the last rate hike of 75 points. base (0,75%) last week.

As rates rise, riskier assets like cryptocurrencies tend not to have the same luck, because safer assets like US Treasuries are more profitable. Additionally, Citigroup raised the likelihood of recession to 50% today.

"The global economy continues to be plagued by severe supply shocks, which are driving up inflation and reducing growth," Citi chief global economist Nathan Sheets wrote in a research note. "But two other factors have recently emerged: Central banks are raising interest rates with increasing vigor in their fight against inflation, and global consumer demand for goods appears to have softened."

Investor pressure

The Fed has also begun to reduce its huge balance sheet (nearly $ 9.000 trillion), which means eliminating the bonds it holds. This will essentially remove liquidity from the economy, a move that could further damage Bitcoin.

"In a world where liquidity is abundant, this world's bitcoins are doing well," Ian Harnett, chief investment officer of Absolute Strategy Research, told CNBC recently. "When this liquidity is withdrawn - and that's what central banks are doing right now - there is extreme pressure on the markets."

Harnett believes that the price of Bitcoin could drop as low as $ 13.000, which would certainly drag the rest of the cryptocurrency market with it.

Recently, there have been some big Bitcoin sellers and pressures on Investors when the price of Bitcoin fell. Cryptocurrency intelligence service Arcane Research recently noted that Bitcoin's huge drop over the past weekend may have been the result of the larger Bitcoin spot ETF losing half of its assets under management.

Purpose Bitcoin ETF apparently lost more than 24.500 Bitcoin tokens last Friday, the largest since it went public on the Canadian stock exchange in April 2021. According to Arcane Research, the exit of the assets forced the ETF to sell around 500 million. dollars of Bitcoin, which cannot be good for the dynamics of supply and demand. Arcane analysts believe that the sudden outflow of funds may have been caused by "a forced seller in a large liquidation".

What will happen now?

I certainly agree with Harnett that the price of Bitcoin may continue to fall as the Fed continues to reduce its balance sheet. However, trying to time the markets is next to impossible.

In the long run, I believe that Bitcoin and Ethereum are destined to stay and that at these levels they are a good long-term buy. I have never been a fan of Dogecoin because it has no use in the real world and has no technical advantage over other cryptocurrencies, which is why I recommend avoiding the meme token.