The crypto winter has been in evidence since March 2022. Therefore, people have become used to the bearish run. Additionally, they expected it to remain steady. However, it was not to be so! Even the bear market has been showing signs of further turmoil. You can improve your trading skills with the bitql app.
For instance, Bitcoin crashed to $20,800, towards mid-June. BTC had never gone so low, after December 2020. Even Ultra coin or UTC is priced at $22,200. In other words, the pricing has gone down by 5% within a mere span of 24 hours. Previously, it was down by 25%. As for the global cryptocurrency marketplace, it went below $1 trillion.
Careful thought suggests that there could be three causes for this marketplace chaos.
The inflation data for May 2022, was publicized by U.S. authorities. The increase was 8.6%. The acceleration referred to a 40-year maximum. The stock market was quick to respond. It had been at its highest point in January 2022. However, inflation brought S&P (Standard and Poor Index) 500 down, by 20%.
Now, Bitcoin has been exhibiting a glorious correlation with stocks, in 2022. Fiscal Quarter (Q1) 2022, witnessed the indicator moving up to almost 70%.
Unlike earlier, cryptocurrencies no longer reside in a separate and decentralized environment. They are no longer willing to be separated from traditional markets. Therefore, plenty of money is moving from traditional markets into crypto marketplaces.
What is the reason for the plummeting of marketplaces?
Indirectly or directly, it is inflation and the stock market crash. Crypto enthusiasts began to feel apprehensive about the Federal Reserve’s intentions. It could enhance interest rates, to combat inflation. In turn, this should lessen the availability of credit. Consumers might walk away, in large numbers. Ultimately, there could be an economic recession.
Investors develop pessimistic sentiments. As a result, their actions suffer. Finally, the emotional state reaches the marketplace. It misbehaves!
Rising interest rates are not the only problem. Investors have accepted it now. They have no choice, for the Federal Reserve did enhance rates in 2022. Surprisingly, this strategy has had no effect on inflation. It still exists. So do investors’ apprehensions!
Crypto enthusiasts wonder if the Federal Reserve will now go in for tightening of policies.
The impact of an increase in rates is visible on certain tools, too. One of them is the U.S. Treasury Bonds. They should now prove to be more profitable.
Sensing this, experienced investors are taking certain actions. They are letting go of high-risk and high-yield assets. These assets are digital currencies and stocks. After all, there could be the advent of a recession in the future. Instead, they are putting their all into low-risk bonds. These bonds should bring in greater returns than earlier.
Fear spreads! Some investors are brave, thanks to their experience. Others are worried about what will happen in the future. They also wonder if all the crashes will disappear soon!
The enhancement of fear follows on the heels of the Terra Luna/UST collapse. Investors have witnessed what happened after this collapse. Therefore, they fear that they may lose everything.
Even experienced experts are wary. They wonder if there will be other major collapses in the crypto industry. Therefore, they are striving to protect their savings/hoardings. To this end, they are busy closing their positions.
The fear is easy to view, thanks to the Fear & Greed Index. This index has been vacillating between two extreme values, in June 2022.
As mentioned earlier, three things are responsible for the turmoil in global marketplaces. One refers to the concerns regarding the Federal Reserve’s experiments with interest rates. Another cause is the diversification of low-risk assets. A third is a rising fear amongst investors. It is leading to the rapid selling of their crypto assets. Nonetheless, these reasons do not seem to justify such extreme despair. It could be that these reasons are merely catalysts. They are pushing towards a natural decline.
Even traditional marketplaces go through cycles of bad and good. Digital currency marketplaces cannot prove to be an exception. It should be noted that despite an ongoing pandemic, cryptocurrencies displayed wonderful growth in 2021. The subsequent year seems to be a bearing phase.
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