The price of cryptocurrencies is falling, and it appears like there is no end in sight. The following three factors explain why bitcoin prices are declining. Due to this year’s market fall, most profitable portfolios are net losers, and new investors may lose faith in Bitcoin (BTC).
Investors know that cryptocurrencies are more volatile than the typical asset class, but this year’s decline has been particularly severe. After reaching a record-breaking high of $69,400, the price of bitcoin plummeted during the next 11 months to an unexpected annual low of $17,600.
The Threat of Rate Hikes
Raising interest rates makes borrowing money more expensive for both individuals and companies. The cost of doing business, the cost of goods and services, the cost of manufacturing, the cost of labor, and eventually, the cost of almost everything will all go up.
The United States Federal Reserve is raising interest rates primarily due to high, unabated inflation. And Bitcoin and the larger crypto market have declined since rate rises started in March 2022. Risk assets typically communicate or move earlier than stocks when monetary policy or measures that gauge the health of the economy change.
The Threat of Regulation
Because of numerous misunderstandings or skepticism regarding the real use case of digital assets, there is a lengthy history of friction between the bitcoin sector and authorities. Different nations and jurisdictions have a variety of inconsistent regulations on how cryptocurrencies are classed as assets and precisely what makes a lawful payment system because there is no operational framework for the regulation of the crypto industry.
The Thread of Liquidations and Scams
Cryptocurrency values fell precipitously during 2022 due to scams, Ponzi schemes, and extreme market instability. Due to a lack of regulation, the industry’s infancy, and the market’s size relative to stock markets, bad news and events that threaten market liquidity can have disastrous effects.
The collapse of Terra’s LUNA and Celsius Network, Three Arrows Capital’s (3AC) misuse of client money and leverage, and Terra’s implosion were all factors that caused sequential drops in asset values in the cryptocurrency market.
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