Crypto rout worsens: Bitcoin, crypto mcap fall by more than 50% in 3 months
After a tough start to 2022 cryptocurrency prices have plunged into a complete meltdown. The Federal Reserve’s signalling of the end to its quantitative easing policy, and amid political turmoil and disruption in Kazakhstan, the prices of the top cryptocurrencies have fallen between 50% and 80 percent in the last three months.
This shock came as a shock to crypto investors who were encouraged by Goldman Sachs’ bold prediction that Bitcoin would reach $100,000 in 2022.
Bitcoin is one of the most important cryptocurrencies. It has dropped to $33,500 from $69,000 in November 2021, a drop of more than 50%. High-volume liquidations in the crypto market have been accompanied by a free fall of Bitcoin prices.
Friday saw 185,480 traders liquidate crypto assets totaling $715 million. Binance alone had $173 million in positions. Ethereum has dropped to $2,250 from $4,812 in November, when it reached an all-time high.
“Bitcoin’s continuing selloff is driving speculators from the market,” he said. The market could be set up for a quick squeeze and relief rally with the leverage quickly building around this asset, however, said Ben Caselin (head of research and strategy, crypto exchange AAX) in a conversation to Cryptonews.com.
According to CoinMarketCap, the total cryptocurrency market call fell to $1.5 trillion, from $3 trillion in November.
The key reasons for the crypto bloodbath
Many factors could be at play in the crypto meltdown.
1. Imminent Russian blanket ban:
Although it is not possible to pinpoint the exact cause, the Bank of Russia released the paper “Cryptocurrencies Trends, Risks and Regulation”. Since long, the central bank has advocated for a blanket ban of crypto trading and mining.
According to the central bank, crypto transactions made by Russian citizens amounting to $5B were a threat to the financial system. The paper states that the spread of cryptocurrency could cause people to withdraw their savings from Russia’s financial sector, which would then reduce its ability to finance real sector and potential economic growth. This will result in a decrease in the number of jobs and potential household income increases.
Russia is the third largest Bitcoin miner worldwide, accounting for 11 percent of Bitcoin’s average monthly hashrate (a measure of computing capacity dedicated to mining operations). Russia has a 35 percent and an 18% share of the global mining haveh rate, while Kazakhstan and USA are at 18 percent.
The Federal Reserve decided to raise interest rates in the US. This country is currently experiencing the highest levels of inflation in decades. Inflation has caused a rise of 10-year Treasury yields, which has led investors to withdraw from positions in riskier asset types like cryptocurrencies.
The Fed’s policy has caused a crash not only in the crypto market, but also in equities. Experts believe that cryptocurrency prices will remain volatile until there is more clarity about how regulation will be applied to virtual currencies.
AAX’s Ben Caselin said that the huge selloff is ‘not too worrying’ because it is weeding non-serious investors out and making room for new entrants to the market.