An explanation for the Cryptocurrency Selloff fever
Compared to the cryptocurrency market, predicting a stock market is relatively easy. There are some social, political, geographical, and economic indicators that can predict the market’s health. On the contrary, the cryptocurrency market is quite tricky. Moreover, the market’s volatility is quite maddening for investors who are new to this market.
All said and done, the factors that affect the stock market also exert some effects on crypto to some degree.
All markets have taken a hit as Russia continues to rattle its saber with Ukraine, so Federal Reserves will probably announce a hike in interest rate in the face of historical inflation.
The entire market seems to have collapsed with roughly 10% loss incurred by Bitcoin, 20% by Ethereum, Nasdaq fell by 5%, and the S&P 500 dipping down by 4%.
What are the factors affecting all the global markets, making them flash in red? Let’s take a crack at it, shall we?
- The ever-growing conflict between Russia and Ukraine has impacted globally. On Monday, Bitcoin plunged roughly 8%, Nasdaq lost by 5%, and S&P 500 dropped by 4%. However, by the time the U.S. market closed, they recovered, entering into positive territory. The already strained relationship between the U.S. and Russia is becoming critical. As per one of the analysts, a possible consequence is the closure of the U.S. financial system to Russian banking institutions. The situation can turn out to be worse if this pressure game continues.
- The market in the U.S. seems to be nervous as the Federal Reserve plans a historical announcement of 7% inflation. The Federal Reserve intends to reverse its pandemic era monetary policies like the near-zero interest rates at the earliest. The “easy money” pumped into the economy boosted riskier assets in nature. Assets like cryptocurrency and tech stocks are now adding to surging inflation.
- The rollback of pandemic era stimulus shook the market because many investors opted for riskier assets, including cryptocurrencies and tech stocks, at zero interest. If the interest rates increase, the investors just have to sell off a few assets for cash, enabling them to earn interest without any risk, securely parked in a savings account.
- The Biden administration is preparing for an executive order related to cryptocurrencies for February. The risk and uncertainty involved in the crypto market are the prime focus. The technology is being studied in-depth as the Feds released a recent paper on the Central banks’ digital currency, publicly stating the creation of a digital version of the U.S. Dollar.
- A vast difference between the current and previous down cycles is that institutional money is pumped into crypto investment. The support of digital currency is fueled by big tech giants like Facebook, Twitter, and venture capital giants. $4.5 billion was being prepared by Andreessen Horowitz for the crypto-tech investment. With all the support from various sectors, the crypto market in 2022 is bound to be more robust than the retail-driven market a few years ago.
So it’s a question that begs to be answered, why does this all matter? Well, for one, if you are thinking of buying Bitcoin at the start of 2022, there has been a 25% drop to the range of $35,000. If the date of the calendar is rolled back to last summer, then Bitcoin fell below $30,000, which was a tremendous drop by 50% from its peak achieved in mid-April around $63,000, and after four months, the value of Bitcoin soared to a record high of $69,000.
As we discussed earlier, the crypto market is quite volatile, so if you are planning to enter the crypto market, you should stick to the decision and not sell off when the market enters into a frenzy. Nobody can predict the cryptocurrency market.