Three Reasons for the Recent Crypto Crash
The cryptocurrency sell-off never ends. Bitcoin plunges below $34,000. More than $1 trillion in market value has evaporated since November. Experts see three reasons for the crash.
The roughly 17,000 different cryptocurrencies have lost more than a trillion dollars in market value since their November high
The renewed heavy losses on the US technology exchange and the uncertainty about the extent and speed of interest rate increases unsettle crypto investors massively. After falling below $38,000 last Friday, the slide accelerated over the weekend as Bitcoin slid below $35,000 and approached $33,000 on Monday. On the Coinbase crypto exchange, the prices for other crypto currencies such as Solana, Cardano or Binance Coin also fell significantly again. Bitcoin has lost more than half of its value since peaking in November.
Was that it – at least for now?
Even declared supporters of digital currencies start pondering this question. Famed crypto investor Mike Novogratz, 57, mused on Twitter that “this will be a year when people realize that being an investor is a tough job.”
Others believe that with the recent panicked sell-off, sellers may soon be outnumbered and Bitcoin may have bottomed for now. At some point the sellers are “exhausted”. And “if that’s the case, then institutional investors will jump back in in a significant way,” financial news outlet Bloomberg quoted Matt Maley, chief market strategist at Miller Tabak + Co. as saying. “They know cryptocurrencies aren’t going away, so they are anytime soon have to invest in them again.”
Bitcoin’s crash alone has wiped out more than $600 billion in market value since the November high. The overall crypto market lost more than $1 trillion to less than $1.8 trillion last time. Experts see three factors, some of which influence each other, for the recent, accelerating price drop in cryptocurrencies.
- Concerns about tighter US monetary policy
- the sell-off in technology stocks since the beginning of the year
- increasing regulatory threats
“Cryptocurrencies are responding to the same type of dynamics weighing on risky assets around the world,” said Stephane Ouellette, CEO and co-founder of institutional crypto platform FRNT Financial.
With inflation galloping as a result, the US Federal Reserve will probably raise interest rates at least three times this year. Some market observers expect four or more rate hikes and are not ruling out a large rate hike of 50 basis points in March. At the same time, the Fed is reducing its bond purchases, gradually reducing its inflated balance sheet. In doing so, it withdraws liquidity from the markets, which restricts speculative transactions.
Tech stocks and cryptocurrencies correlate
Antoni Trenchev, co-founder and shareholder of Nexo, a provider of crypto savings accounts and crypto loans, points to a correlation between Bitcoin and technology stocks. The tech-heavy Nasdaq 100 has seen a staggering rise to as high as 16,700 points over the past 10 years and is now down around 2,000 points year-to-date. “Bitcoin is being hit by a wave of risk-down sentiment. For more clues, we should keep an eye on traditional markets,” Trenchev says, according to Bloomberg.
Investor Novogratz, like the International Monetary Fund (IMF) recently, also points to an apparently closer connection between the prices for cryptocurrencies and the prices for technology stocks. “Cryptocurrencies will have a hard time bouncing back unless a bottom is also found in tech stocks,” he tweeted. For a long time, crypto fans believed that the prices for digital currencies were relatively independent of stocks.