The crypto price crash isn’t that bad, here’s why you shouldn’t disturb the bears
Cryptocurrency prices are plummeting. According to one estimate, crypto assets have lost about $1.35 trillion ($1.9 trillion) in value since November, with some crypto prices crashing by as much as 80%. Many investors are in a difficult position.
The good news is that the global economy is not poorer. As a result, there won’t be much of an economic reaction to the new prices.
Crypto Price Drop Dominates Head
Recent crypto news has been dominated by the price collapse of numerous major currencies.
Since November, the price of bitcoin has been falling. According to reports, the price of cryptocurrencies has also fallen in the past week due to new US regulations for digital assets. The price of Bitcoin fell from $69,000 in November to $32,951 last week.
Bitcoin price chart. Source: Bloomberg
The price of Ethereum has fallen to around $2,400, down from nearly $5,000 at the end of 2021. The value of top cryptocurrencies such as XRP, Solana, BNB, and Cardano has fallen to 30%. The major crypto meltdown of 2022 wiped out $1.5 trillion from the industry as a whole.
The impact of the cryptocurrency meltdown on the rest of the economy is minimal. The $1.5 trillion in losses is only about 6% of US GDP. Second, the cryptocurrency ecosystem is largely separate from the rest of the economy. Because banks have shunned crypto, the crash has had little effect on the financial market.
Many have continued to believe that US regulations contributed to the massacre. Due to the national security risks posed by Bitcoin, the Biden administration is trying to develop a strategy to regulate cryptos.
As a result of the measures taken by the federal government, merchants have been urged to sell their Bitcoin holdings in large numbers.
The US Federal Reserve’s policy changes affect Bitcoin’s pricing.
According to Fed Chair Jerome Powell, the Federal Open Market Committee will raise the double monthly interest rate and thereby reduce asset purchases. The Federal Reserve has implemented these steps to curb inflation and its adverse impact on Bitcoin prices.
Geopolitical disputes can also have a negative impact on the market. Geopolitical disputes can also have a negative impact on the market. Kazakhstan recently faced an electricity shortage as a result of an internal crisis. Widespread tensions are also emerging between Ukraine and Russia.
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End of January confused
At the end of the month, many investors are cautiously optimistic. Since last week, however, the influx has turned positive.
According to CoinShares, digital asset investment products received $19 million in cumulative inflows last week. With $22 million and $32 million in inflows respectively, bitcoin and multi-asset funds led the way.
The news wasn’t all good, as Ethereum continued to experience unfavorable sentiment, with $27 million outflow. This was the eighth straight week that ETH-focused funds have seen an outflow. Outflows were also recorded for Solana, Polkadot and Cardano products during the week.
Since December, institutional investors have been massively selling digital asset products, taking profits and reducing their stakes during market sell-offs. According to data from CoinShares, Bitcoin funds have suffered a net outflow of $131.8 million so far this year. There has been $111.2 million in withdrawals from Ether funds.
Bitcoin fell as much as 2.9% on Monday to around $36,680 before making up for its losses. It is now down more than 18% in a month, the worst start to a year since the 29% drop in 2018 and a dismal sequel to December’s 19 percent drop.
BTC/USD recovers to $38k. Source: Trading Display
Between the November highs and the January lows, Bitcoin has lost about half of its value. According to Zach Pandl and Isabella Rosenberg of Goldman Sachs, this loss places the company at “the low end of the range” of major recordings in the past. Since 2011, the pair estimates the coin has had five major pullbacks from all-time highs, averaging 77 percent peak-to-fall. They noted in a note that the declines lasted an average of seven to eight months. According to them, Bitcoin’s highest cumulative decline, a 93% loss, occurred in 2011.
Related article | Bitcoin Financing Rates Remain Negative for More Than a Week
Featured image from Unsplash.com, charts from TradingView.com, Bloomberg