As evidence of rising stress in the crypto business mounts against the backdrop of monetary tightening, Bitcoin went below $20,000 for the first time since December 2020.
Bitcoin fell as much as 6% to $19.3K in the early hours of Saturday. For the previous 12 days, the most valuable cryptocurrency in terms of market value has been declining. At the time of writing this post, Ether briefly fell below $1000, its lowest level since January 2021, before recovering.
Recall that the Federal Reserve raised its benchmark interest rate by three-quarters of a percentage point a few days ago, the highest increase since 1994, and that monetary authorities have suggested that they will continue to hike aggressively this year to combat inflation.
Major cryptocurrencies such as Bitcoin, Ethereum, and Binance have lost between 15 and 23 percent in the last seven days, and have lost more than 70 percent from their highs. The selloff sentiment in hazardous asset classes, including cryptocurrencies, was driven by a panic reaction to last week’s Fed pronouncement on inflation and the ensuing 75 basis point raise in rates.
As a result of the domino effect, some exchanges temporarily halted withdrawals to reduce volatility, while major crypto firms like Coinbase, laid off over 18 percent of their workers, totaling over a thousand people.
There was also a lot of selling pressure on several smaller altcoins. According to data from coinmarketcap.com, more than $600 million of bitcoin has been liquidated in the last 24 hours.
The sell-off in the crypto space has coincided with a fall in equities, as U.S. Fears of rising interest rates and the looming probability of a recession drove stocks to their lowest weekly percentage fall in two years.
Miners who own around 45,694 bitcoins will be forced to sell their holdings as bitcoin prices continue to plummet. The global crypto market has shrunk to $873bn of valuation from its all-time high of $3 trillion.
What is causing the cryptocurrency market to crash?
The primary cause of the present bear market is the excitement surrounding ICOs (Initial Coin Offerings). Many businesses with a poor business case have collected significant sums of money through ICOs, and a handful of them have even more money than they need — they exceeded their soft cap (which suggests they had enough funding) by 1000 percent, or 100 times.
Many of the projects that have raised funds through ICOs have been built on weak ground. Some of them may work and turn into genuine businesses, but even the most successful concepts must be thoroughly researched before being invested in. It’s critical to understand who is behind the project because this will help establish whether it’s a legitimate corporation with a large number of investors or a hollow shell pumped with billions of dollars.
Many ICOs have raised funds by promising unrealistic short-term returns (for example, massive daily growth or 10–100 times investment in a year), and others have raised funds by making very extreme promises that can’t be fulfilled in such a short time frame (for example, a project will raise USD 1 billion within three years). The final type of initiative either raises funds by making such strong promises, then goes into hibernation and waits for further funding, or “realizes” that their project will never succeed.
What awaits us in the future?
Over the past year, Bitcoin prices have reached numerous new all-time highs, followed by small losses, and increased institutional investment from significant firms. Late last year, Ethereum, the second-largest cryptocurrency, also set a brand-new record. The Biden administration and U.S. government representatives have shown an increasing interest in new cryptocurrency legislation.
Since the greatest is yet to come, crossing Bitcoin off your list is not a good idea.