Why is the crypto market down today?

Why is the crypto market down today?

Why is the crypto market down today?

Bitcoin price (BTCticker down $19,155) is struggling to stay at marginal 0.23% gain on October 20th, but overall crypto prices are falling and the overall market remains in a strong downtrend. resistance level. Concerns about the US Federal Reserve’s “lack of progress” in curbing high inflation is likely at the root of the ongoing malaise in crypto prices.

In October 20, Philadelphia Federal Reserve President Patrick Harker indicated that higher interest rates had not been effective in curbing inflation, concluding that “we’re going to keep raising rates for a while longer. Many analysts believe the Fed’s aggressive rate hikes represent another policy mistake — the first being waiting too long to address rising inflation — and that a deep recession is on the horizon in 2023. Prices are now at 8.2% more, according to data from the Bureau of Labor Statistics.

In addition to a 0.4% increase in consumer prices, core CPI is up 0.6% monthly since September and 6.6% trailing 12 months when food prices and energy are subtracted. In short, the last thing the Federal Reserve wants to see is rising inflation.

Fed rate hikes are expected to cool the economy and curb high inflation, so the better-than-expected Oct. 13th report is likely to result in another round of fundamental rate hikes of 0.75 point in the coming months. Given the high correlation between the crypto and stock markets, Bitcoin’s price action tends to follow the direction of the S&P 500 and the Dow, and a series of economic events in mid-October could continue to weigh on stock prices.

The following data highlights key economic events that have historically impacted investor confidence in the cryptocurrency market:

Several large US companies are reporting quarterly earnings this week and the mix of results is causing volatility in stock markets. Tesla (TSLA) shares fell 6.2%, missing third-quarter profit target, with the electric vehicle maker citing manufacturing and supply issues.

Let’s take a closer look at three reasons why crypto prices will keep falling in 2022.

Federal Reserve interest rate scrambles

Rising interest rates increase the cost of borrowing for consumers and businesses. This has the side effect of increasing the cost of running businesses, the cost of goods and services, the cost of production, wages, and ultimately the cost of just about everything.

High and unsustainable inflation is the main reason the Federal Reserve is raising interest rates. When monetary policy or metrics gauge the strength of economic change, risky assets tend to signal or move before stocks.

In 2021, the Fed began signaling its plans to eventually raise interest rates, and data shows Bitcoin’s price corrected sharply in December 2021. In a way, Bitcoin and Ethereum were the canaries in the coal mine, signaling what was to come for stocks. markets. If inflation eases, the health of the economy improves, or the Fed begins to signal a change in its current monetary policy, risky assets like bitcoin and altcoins could be the “canaries in the coal mine” again by
reflecting returns reflecting the risk appetite of those Investors.

The persistent danger of regulation

The cryptocurrency industry and regulators have a long history of not getting along due to various misunderstandings or mistrust of the actual use case of digital assets. Without a framework to regulate the cryptocurrency sector, there is a multitude of political conflicts in different countries and states over how cryptocurrencies are classified as assets and what exactly constitutes a legal payment system.

The lack of clarity on this issue is deliberation on growth and innovation at intervals the sector, with many analysts believing that cryptocurrency integration cannot happen until it is more broadly agreed. A set of understood and understood laws will be enacted. Risk assets are heavily influenced by investor sentiment, and this trend extends to bitcoin and altcoins. almost monthly prices.

Scams and Ponzis triggered insolvencies and repeat blows to investor assurance

Scams, Ponzi schemes, and severe market volatility have also played significant roles in the decline in cryptocurrency prices throughout 2022. Bad news and events affecting market liquidity lead to disastrous results due to a lack of regulation, the youth of the cryptocurrency industry, and the market is relatively small compared to stock markets.

The implosion of Terra’s LUNA and Celsius network, along with Three Arrows Capital’s (3AC) abuse of leverage and client funds, have been responsible for consecutive hits to asset prices in the crypto market. Bitcoin is currently the largest asset by market cap in the industry, and historically, altcoin prices tend to follow the direction that BTC price is taking. As the Terra and LUNA ecosystem collapsed, Bitcoin’s price corrected sharply due to the multiple sell-offs that took place within Terra and investor sentiment deteriorated.

The same happened on an even larger scale when Voyager, 3AC and Celsius crashed, wiping out tens of billions of investor funds and protocols.

What to expect for the rest of 2022 through 2023?

Factors influencing the price decline in the crypto market are governed by Fed policy, which means that the Fed’s power to raise, suspend or lower interest rates will continue to directly affect the price of Bitcoin, the Price of ETH and will affect prices of altcoins. Meanwhile, investor risk appetite is likely to remain subdued, and would-be crypto traders might consider waiting for signs that US inflation has peaked and the Federal Reserve is beginning to use language suggestive of a tipping point of policy.

 

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