What goes up, must come down. In this case, a crypto crash is actually a healthy event despite annihilating our investments. The plunge that initially started on May 5th has been bleeding the market as Bitcoin is currently trading below $31,000. In the meantime, the US stock market is not doing so hot either. In general, the investor sentiment has rapidly shifted towards traditional assets as the hectic geopolitical issues spread fear across all equity markets. But, this is not the first crypto crash and we’ve seen worse. At this point, the question is what series of benefactors are causing this dip?
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Fed Interest Rates
There once was a central baking system called the Federal Reserve created to alleviate financial crises. With a massive central authority over the world’s financial system, the FED is there to protect the investor and slap the greedy corporate. Thankfully, for the past couple of years where the US government printed the heck out of US dollars, they have been asleep. And now, after calling the inflation transitory for years, they have decided to raise interest hikes.
The rising interest rates have slumped equity markets especially in the tech sector. In this case, the crypto crash is basically and primarily caused by the half percent interest rate rise that took place last week. Subsequently, NASDAQ got wrecked and is down 2,200 point in 30 days. As for crypto, Bitcoin is now officially 50% down from its ATH and is trading below $31,000. And when BTC goes down, altcoins will follow suit.
In total, the crypto crash has shrunk the market by more than 10% or $200 billion. Interestingly, despite all the drama, Bitcoin is pretty much following the stock market, specifically NASDAQ. According to a senior market analyst at Onada, NASDAQ, the tech focused index is down 21% this year while BTC is down 22%. After all, our previous prediction regarding BTC and the stock market has remained true.
“Bitcoin is really stuck in a sideways news cycle where you’re just waiting for it to be calm on Wall Street, and then you’ll see more people confident in investing. I still think there’s a lot of long-term potential value here, but you have to be able to stomach this volatility.” Said Edward Moya.
Crypto Crash Cycle
The crypto market had too much success in 2021 and that is a fact. 2021 was the year of monkey pictures selling for $80 million and Elon pumping previously unknown altcoins for 1000% growth. And of course, finance is not fairy tale and markets will collapse as a natural part of bull bear cycle. In that regard, the total crypto market cap is down at $1.6 trillion in a ten-month low.
While CZ Binance and Elon are telling retail investors to buy like there’s no tomorrow, institutional investors were aware of the cycle.
According to CoinShares, we’ve had four consecutive weeks of institutional crypto fund outflow. The outflows could indicate that institutions are waiting for another entry. However, with a broader perspective, the uncertain international situations have turned investors in favor of traditional assets. And with a crazy bullish year that was 2021, investors would rather put that big money they made into real-estate.
According to Chris Kline, founder of Bitcoin IRA, crypto investors are considering their options and “moving their money back to the dollar, as a starting point, and then seeing what they’re going to do from there.”
We’d love to hear what you think about the crypto crash in the comments.
