The whole market capitalization of the cryptocurrency market has dropped by more than $500 billion. As leading crypto industry bled profusely, the market slaughter resulted in almost $700 million in liquidation. Bitcoin, the most popular cryptocurrency, has dropped to $35,000. The total market capitalization of all cryptocurrencies is presently about $1.6 trillion, little less than half of what it was in November. The $500 billion crypto market crisis, according to crypto aficionados, was caused by the Fed raising interest rates, Wall Street, and Russia.
Interest rate hike by the Fed: The Federal Reserve intends to boost interest rates.
Bitcoin plummeted below $36,000 after the Federal Reserve said on Wednesday that it would reduce the size of its balance sheet. Because the market had already “priced in” the news, the flagship cryptocurrency soared to roughly $39,000 shortly after the US made a statement indicating that it would likely raise interest rates in March to combat inflation. In the face of the Federal Reserve’s projected tightening of monetary policies later this year, as well as an increase in interest rates, investors are fleeing riskier assets. As the Federal Reserve contemplates raising interest rates to combat inflation, investors are fleeing riskier assets such as tech stocks and cryptocurrencies. Because savers and investors are lured to the safer returns of government bonds, federal interest rates tend to drive capital away from speculative sectors, so investors can’t simply take their money out of crypto and put it in bonds. In this scenario, the central bank has stated that, in addition to raising interest rates, it will progressively reduce its bond-buying programs. Unfortunately, crypto falls into this type of speculative investment, and at the current rate of change, both tokens and crypto companies will lose value.
Wall Street, a financial district in New York City
Bitcoin has had a spectacular rally over the previous two years, and the entire cryptocurrency market has entered the mainstream. Cryptocurrency has attracted a large number of traditional investors. While crypto fans have long hoped for “institutional money,” the uptick has proven to be a double-edged sword. A severe decline in Bitcoin prices, according to analysts at the International Monetary Fund (IMF), might enhance investor risk aversion and lead to a drop in stock market investment, and vice versa. As a result of ETFs and investors, Bitcoin has been linked with equities markets. The Bitcoin market has been following Wall Street’s lead. The rising link between Bitcoin and the stock market, according to market analysts, may have spurred the drop. Bitcoin’s price has been positively connected with the index since early 2020, meaning that they move in lockstep. On Monday, entered correction territory, plunging 10% from its record closing.
For years, Russia has claimed that cryptocurrency may be used to launder money or fund terrorists. The growing popularity of cryptocurrencies, according to the Central Bank’s first deputy governor, raises concerns about financial stability threats. Because Russia is the world’s third-largest mining hub, the central bank’s recent report calling for a blanket ban on crypto mining and trade will have an impact on the crypto market, which is exactly what happened. In addition to its demand, the Russian central bank equated Bitcoin to a pyramid scheme and requested an immediate ban on its use in Russia. The central bank also cautioned that cryptocurrency might jeopardize the country’s financial sovereignty.
The crypto market’s first significant plunge in 2022 has sparked a selling frenzy, but professional traders continue to advocate for HODLing, stating that a drop of up to 30% is unimportant in a bull market. Approximately 60% of all Bitcoin in circulation has not changed hands in over a year, according to Kraken intelligence. The relative strength index (RSI) is continuing to increase from very oversold levels, signaling the possibility of a recovery, but purchasers must clearly move above $40,000 in the near term to signify a recovery phase. Many loud fans and boosters of Bitcoin and altcoins claim that they have the ability to alter finance, and they are pushing for crypto to become more popular. However, many people are buying and selling crypto as a speculative wager in the hopes of making a quick profit.