BTC, SHIB and altcoin prices continue to drop and there seems to be no bottom in sight. Here are three reasons why cryptocurrency prices are falling. In addition, what awaits the markets next?
Cryptocurrency market is stuck in the black winter!
Bitcoin (BTC) failed in an attempt to lock in gains above the $20,500 level. That’s why crypto prices, including SHIB, continued to drop on October 7. For the past 115 days, the BTC price has stabilized between $17,600 and $24,500. Also, the current price action is concentrated in the lower part of the range. The majority of altcoin prices, including Ethereum (ETH) and SHIB, are also seeing single-digit losses. The crypto market in general is following the pullback that takes place in the stock markets.
Investors know that cryptocurrencies exhibit above-average volatility. But this year’s decline has been extreme. Bitcoin reached an all-time high of $69,400 towards the end of 2021. However, its price later dropped to a one-year low of $17,600 in 11 months. Currently, investors continue to be risk-averse. They are waiting to see if the Federal Reserve’s current monetary policy will alleviate persistently high inflation in the United States. Therefore, investor sentiment remains soft.
New data on the US labor market shows that for the seventh consecutive month, the market added more jobs than expected. This runs counter to the Fed’s goal of cooling the economy as a way to cap inflation. The strength of the labor market increases the chances of the Fed continuing to raise interest rates by 0.75%. In fact, there are rumors of a possible 1% increase in the near future.
3 reasons why the prices of BTC, SHIB and altcoins are falling
1-Central Bank rate hike
Raising interest rates increases the cost of borrowing for consumers and businesses. This has the knock-on effect of increasing business operational costs, costs of goods and services, costs of production, wages, and ultimately, the cost of almost everything. High, uncontrollable inflation is the main reason the Fed raised interest rates. Since rate hikes began in March 2022, Bitcoin and the broader crypto market have been in a correction.
When monetary policy or the metrics that measure the strength of the economy change, risk assets tend to signal or move earlier than stocks. In 2021, the Fed finally began to signal its plans to raise interest rates. The data shows that the Bitcoin price has recovered sharply by December 2021. In a way, Bitcoin and Ethereum were canaries in the coal mine pointing to what awaited the stock markets.
If inflation begins to subside, the health of the economy improves, or the Fed begins to signal a turning point in its current monetary policy, risk assets such as Bitcoin and altcoins, including SHIB, are likely to be “canaries in the coal mine” again, reflecting the risk return of sentiment from investors.
2-The threat of permanent regulation
The cryptocurrency industry and regulators have a long history of disagreeing, either due to various misunderstandings or mistrust about the actual use-case of digital assets. Without a working framework for crypto industry regulation, different countries and states have multiple conflicting policies on how cryptocurrencies are classified and what exactly constitutes the legal payment system.
The lack of clarity on this issue weighs on growth and innovation in the industry. Many analysts say that the adoption of cryptocurrencies cannot happen without the enactment of a set of agreed and agreed laws. Risk assets are heavily influenced by investor sentiment. This trend extends to Bitcoin and altcoins. To date, the threat of unfriendly cryptocurrency regulations, or in the worst case, a direct ban, continues to affect crypto prices almost monthly.
3-Scams and Ponzi liquidations
Scams, Ponzi schemes and sharp market volatility also played an important role in falling crypto prices throughout 2022. Bad news and events that jeopardize market liquidity tend to have disastrous consequences due to the lack of regulation, the youth of the cryptocurrency industry and the market.
cryptocoin.comTerra and Celsius explosions are the first ones that come to mind. Also, Three Arrows Capital’s (3AC) abuse of leverage and client funds. These have led to successive blows to asset prices in the crypto market. Bitcoin is currently the largest asset by market cap in the industry. Thus, historically, altcoin prices tend to follow BTC price. Bitcoin price dropped sharply due to multiple liquidations that occurred as the Terra ecosystem collapsed. This had a very bad effect on investor sentiment. The same happened when Voyager, 3AC and Celsius crashed.
What can be expected for the rest from 2022 to 2023?
Fed policy drives the factors affecting falling prices in the crypto market. So the Fed’s power to raise, pause or lower interest rates will continue to have a direct impact on BTC price, SHIB price and altcoin prices.
Meanwhile, investors’ risk appetite will remain muted. Also, potential crypto traders will wait for signs that US inflation has peaked. For this, it will follow the Fed’s use of language that is indicative of a policy axis.
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