Cryptocurrencies are crashing. What’s happening to the market?
Read more to get a clearer insight on what’s been happening the past few days!
In the face of global inflation, investors appear to be shifting away from bitcoin and into less risky and less problematic options. The fall is also linked to the coin terraUSD (UST) crashing after losing its peg to the US dollar, which has wiped out its support coin, Luna as well. Also, one of the most important reasons behind the drop of cryptocurrencies is panic sells and hype buys.
The Federal Reserve’s inflation-control measures have had an adverse influence on the price of Bitcoin. The value of risky assets (such as Bitcoin) tends to fall after the Federal Reserve adjusts its policy to become more fiscally conservative. In general, as Bitcoin develops and gets more generally adopted, its price becomes more correlated with the prices of traditional assets such as stocks. Because of this developing link, every incident that causes price losses in traditional markets is likely to cause comparable or bigger price declines in Bitcoin.
Also, several governmental policies reduced the demand on cryptocurrency such that of China. In the latest wave of crypto restrictions, China has ordered the entire shutdown of Bitcoin mining in its Sichuan province, as well as a prohibition on banks enabling crypto transactions. The People’s Bank of China, the country’s central bank, has effectively banned digital coins after declaring that all cryptocurrency transactions are illegal. South Korea also implemented a stricter licensing system for cryptocurrency issuers.
In essence, all markets recover. Cryptocurrency can recover through new regulations aimed to support it. Facebook aims to ease transactions through ‘Meta Pay’ this might boost the demand for Bitcoin, as well as many more reasons that could lead to the recovery of cryptocurrencies.
Just as you shouldn’t let a price drop affect your choice to buy cryptocurrency, you shouldn’t let a quick price surge change your long-term investment strategy. Even more importantly, do not start buying additional cryptocurrency simply because the price is growing. Before investing any extra money in a speculative asset like Bitcoin, be sure all of your financial bases are covered, from retirement accounts to emergency savings.