Bitcoin prices collapsed massively last night. The overall cryptocurrency market fell by more than 7% in the past 24 hours. Bitcoin prices reached a low of USD 43,000, while other altcoins breached their support levels. Did we officially enter a crypto bear market? Why is the crypto market crashing? Let’s dive into the specific reasons.
US Federal Reserve
After the US Federal Reserve (FED) published the minutes of the previous meetings yesterday evening, almost all US technology stocks crashed. The Nasdaq-100 tech index lost almost 2% at the end of trading. With the tech values, the crypto values also crashed. In addition to Bitcoin, Ethereum, Cardano, and Solana also lost. Usually even in double digits. It seems like the market is currently evaluating cryptocurrency as a tech stock.
Why did Cryptos Crash?
Tech stocks usually react much more aggressively to news from central banks than value stocks. Especially interest rate changes and inflation usually weigh on tech stocks. The often indebted companies have to spend more money to pay off their debts when interest rates are higher. If inflation is higher, their future profits will be worthless, which will also depress the price. Even if this is not the case for Bitcoin, the price seems to correlate with Tech shares or at least with the FED protocol. In that very protocol, the central bankers fear a further rise in inflation (more than assumed) and at least three interest rate hikes for 2022. Possibly even a fourth. The end of loose monetary policy.
How will this Affect Bitcoin?
The effects on Bitcoin should be manageable. In fact, it is not yet known how Bitcoin behaves when inflation is high. It is possible that high inflation could even fuel the Bitcoin price and give it a reputation as digital gold. The fact that there will be less liquidity in the market due to higher interest rates should only affect Bitcoin to a limited extent. Especially since interest rates are likely to remain comparatively very low even after the increases.
Overall, most of the inflation and interest rate risks are likely to be factored in by now. Little should stand in the way of long-term recovery of the Bitcoin price. If you are looking to buy the dip, check out Binance.
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