Three Reasons Behind The Crypto Market Collapse

Three Reasons Behind The Crypto Market Crash - Bitcoin crashes by 10 to price of 38KTotal cryptocurrency market capitalization has dropped to its lowest level in the past ten months. Another $ 130 billion left space over the weekend, resulting in the market cap plummeting to $ 1,62 trillion. It wasn't that low since early August, according to CoinGecko.

Bitcoin (BTC) and Ethereum (ETH) again lead losses during the Asian trading session on Monday morning. Bitcoin fell a further 3,1% to $ 33.486 at the time of writing, and Ethereum is down 4,2% to $ 2.443, its lowest price since January.

The cryptocurrency markets are cyclical, but there are a couple of other factors driving the selloff at the moment.

Driver of the cryptocurrency crash

1. Fed interest rate hikes

The Federal Reserve raised interest rates by half a percentage point last week, and Wall Street responded with a stock slump. The cryptocurrency markets have followed suit, losing more than 10% or nearly $ 200 billion in the past week.

Edward Moya, Oanda's senior market analyst, noted that cryptocurrency markets have been highly correlated with indices such as the Nasdaq. He noted that the tech-focused index fell 21% this year, while Bitcoin fell 22%. Moya added that confidence is low, and the asset has been mostly consolidated for most of this year:

“Bitcoin is really stuck in a side news cycle where you are just waiting for calm on Wall Street, and then you will see more people confident in it.invest. I still think there is a lot of potential long-term value here, but you have to be able to handle this volatility. "

2. Cooling of institutional interest

The year 2021 was extremely bullish for institutional cryptocurrency investments, but that did not lead to 2022. Big names like Tesla, MicroStrategy, El Salvador, and several payment platforms have entered crypto, driving the momentum and pressure of purchase. US regulators also allowed trading of the first Bitcoin futures exchange-traded funds, which was also bullish.

This year has been much more moderate, and according to CoinShares, there have been four straight weeks of institutional crypto fund outflows. Moya added that corporate and institutional investors are in a "wait and see" mode.

"There is a belief that mainstream adoption is taking much longer than expected."

3. Look for safer ground

Investors appear to be reacting to what is happening in the broader economy. There is more confidence in traditional assets with the recovery from the pandemic in full swing and the end of global restrictions.

According to Chris Kline, co-founder of Bitcoin IRA, some cryptocurrency investors are considering other options and "shifting their money to the dollar, as a starting point, and then see what they will do from there."

Bull-bear cycles

Finally, the cryptocurrency markets are cyclical; what goes up must come down. There have been four distinct bull / bear markets since Bitcoin's inception more than ten years ago. If previous cycles are anything to follow, cryptocurrency markets may remain bearish for the remainder of this year and into 2023 before turning again.

According to analysts, BTC could drop to the mid $ 20K and consolidate there for a while before there is significant upward momentum again.