The cryptocurrency market is down for the following three reasons: cryptocurrency prices keep falling, and there doesn't seem to be a bottom in sight.
The price of Bitcoin (BTC tickers down $19,057) is struggling to maintain its 0.23 percent gain on Oct. 20, but overall, crypto prices are falling and the market as a whole remains in a sharp downtrend.The price of Bitcoin remains below $20,000, which many investors consider to be a psychologically significant support and resistance level.
The likely cause of the prolonged malaise in crypto prices is concern over the "lack of progress" on tamping down high inflation at the Federal Reserve of the United States.Patrick Harker, president of the Philadelphia Federal Reserve, said on October 20 that "we are going to keep raising rates for a while" and that higher interest rates have not stopped inflation.
The Fed's aggressive rate hikes, according to many analysts, are yet another policy error—the first was waiting too long to address rising inflation—and that a severe recession will begin in 2023.
Consumer prices increased by 0.4% in September, according to the CPI print.Consumer prices are now 8.2% higher than they were a year ago, according to data from the Bureau of Labor Statistics.
The core CPI has increased by 6.6% over the past year, when food and energy prices are removed, in addition to a 0.4% increase in consumer prices since September. In short, the Federal Reserve does not want inflation to rise.Since the Fed's rate hikes are meant to cool the economy and reduce high inflation, the higher-than-expected report on Oct. 13 is likely to result in additional 0.75 basis point increases in the months to come.
Bitcoin's price action typically follows the S&P 500 and Dow, and a number of economic events occurring in mid-October may continue to exert pressure on crypto prices. This is due to the high correlation between crypto and equity markets.
Important economic events that have a history of influencing investor sentiment in the cryptocurrency market are highlighted on the following dates:
End of the month on Oct. 17:Earnings for the third quarter, October 28:Personal Consumption Expenditures (PCE) price index This week, a number of major US companies will report quarterly earnings. The inconsistent results are causing equity markets to be volatile.After Tesla (TSLA) missed its Q3 earnings target due to production and delivery issues, the electric vehicle manufacturer's stock dropped 6.2%.
The strength of the US dollar and what appears to be a serious escalation in the conflict between Russia and Ukraine continue to weigh on all markets, in addition to these upcoming events.
Let's examine three of the reasons why crypto prices will continue to fall in 2022 in greater depth.
The Federal Reserve raises interest rates. Increasing interest rates makes it more expensive for businesses and consumers to borrow money.This raises the cost of running a business, the cost of goods and services, the cost of production, wages, and eventually nearly everything else.
The primary reason the Federal Reserve of the United States is raising interest rates is high, uncontrollable inflation.Additionally, Bitcoin and the broader crypto market have experienced a correction since the beginning of rate hikes in March 2022.
Risk assets typically signal or move ahead of equities when monetary policy or economic strength metrics change.The Federal Reserve began announcing its intention to eventually raise interest rates in 2021, and data indicate that the Bitcoin price will experience a sharp correction by December 2021.Bitcoin and Ethereum were, in a way, the equities markets' early warning signs of what was to come.
Risk assets like Bitcoin and altcoins could once again be the "canaries in the coal mine" by reflecting investors' return to risk-on sentiment if inflation begins to taper, the economy improves, or the Fed begins to signal a change in its current monetary policy.
The ongoing threat of regulation The cryptocurrency industry and regulators have a long history of disagreement due to misperceptions or mistrust regarding the actual application of digital assets.Different nations and states have a plethora of contradictory policies regarding how cryptocurrencies are classified as assets and precisely what constitutes a legal payment system because there is no working framework for the regulation of the crypto sector.
Many analysts believe that the mainstreaming of cryptocurrencies cannot occur until a set of laws that are more widely accepted and understood are enacted because of the lack of clarity on this issue.
Investor sentiment has a significant impact on risk assets, including Bitcoin and alternative cryptocurrencies.Cryptocurrency prices continue to be impacted on a nearly monthly basis by the threat of unfriendly regulations or, in the worst case, an outright ban.
Scams and Ponzi schemes led to liquidations and repeated blows to investor confidence. In addition, market volatility and scams and Ponzi schemes played a significant role in the decline in cryptocurrency prices that lasted throughout 2022.Due to the cryptocurrency industry's youth, lack of regulation, and relatively small size in comparison to equity markets, bad news and events that affect market liquidity frequently result in catastrophic outcomes.
The implosion of Terra's LUNA and Celsius Network, as well as Three Arrows Capital (3AC)'s misuse of leverage and client funds, were all to blame for successive drops in the value of crypto assets.Altcoin prices have historically followed the BTC price, which is currently the largest asset in the sector by market capitalization.
Due to multiple Terra liquidations, the Bitcoin price experienced a sharp correction as the Terra and LUNA ecosystems collapsed into one another. Investor sentiment plummeted as a result.
The collapses of Voyager, 3AC, and Celsius were even more devastating, wiping out tens of billions of dollars' worth of investor and protocol funds.