4 Reasons Why Crypto Prices are Crashing

For the past few months, the prices of Bitcoin, Ethereum, and other cryptocurrencies have been steadily declining, mainly owing to Bitcoin’s recent drop below $43,000. Since reaching an all-time high of around $67,500 on November 8th, 2021, Bitcoin’s price has just been on a downward slope and has since lost 35% of its value. 

Ethereum’s price has also been trending downwards from its all-time highs on November 8th, when it hit a high of $4,818. Unfortunately, Ethereum is now trading at approximately $3400, equating to a 30% decrease. Expectedly, Ethereum’s market cap has also dropped, falling from almost $569 billion to a little under $405 billion in the same time frame. Bitcoin and Ethereum are now in the midst of a bear market.

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The prices of other cryptocurrencies haven’t been spared either. According to CoinMarketCap data, the prices of Solana, Cardano, Binance Coin, and others have been on a continuous descent since the start of the New Year. The last 24 hours, though, have been extremely taxing. During the previous 24 hours, Bitcoin has lost 7.5%, Ethereum 11.9%, Cardano 11%, Binance coin 13.5%, and Dogecoin has lost 11.7%.

So why are crypto prices falling so sharply? Here are 3 reasons that can explain the recent declines. 

1. Hawkish Approach by the Federal Reserve

The recent downturn may be traced back to yesterday’s Fed minutes release, in which the Fed took a significantly more aggressive stance than many had anticipated. 

Inflation numbers in the United States have risen sharply in recent months. According to media sources, the country experienced the highest inflation in 39 years. To keep prices from rising much further, the Federal Reserve, in its report, confirmed its intention to hike interest rates.

According to Business Insider, interest rate hikes have been inversely proportionate to Bitcoin prices. The slightest rise in bond yields is often an incentive for people to pull their money out of cryptocurrencies and put it into government assets like treasury bonds. This has primarily resulted in a dramatic drop in crypto prices in recent months. 

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2. Uncertainties due to Omicron

According to the CEO and Co-founder of Vauld, Darshan Bathija, cryptocurrency prices have been falling lately due to the uncertainties facing the entire market.

Bathija told Financial Express: “The current price drop of BTC can be attributed to the uncertainty all markets are facing, with the spread of the Omicron variant.” 

“We can expect two very contrasting things simultaneously – many investors will view this as an opportunity to buy the dip, while many will also try to cut their losses, leading to a sellers’ frenzy,” he continued.

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3. Government regulation in India

The Indian government is close to finalizing a piece of legislation that will either ban Bitcoin or regulate the cryptocurrency sector. The bill’s specifics have not been made public, although different media reports have suggested that it could be one of the two options stated above. As a result, a significant number of people in the country have sold their Bitcoin and other cryptocurrencies, causing prices to plummet. 

4. Liquidations

Bitcoin is now officially in a bear market, as indicated by the large crypto market liquidations that have occurred over the last three days. According to data from analytics tool Coinglass, crypto futures valued at approximately $812 million were liquidated during the previous 24 hours after bitcoin broke through the $46,000 support line and sank to $43,000.

Liquidations happen when a trader’s leveraged position is forcefully closed by an exchange as a safety measure due to a partial or entire loss of the trader’s initial margin.

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Conclusion

The plummeting cryptocurrency prices have muted retail investors’ celebratory mood. If things continue to look this grim for cryptocurrencies around the world, investors are fearful that bitcoin could fall below $30,000 this year.

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