Since November 2021, when it peaked at $67,617, Bitcoin has lost more than a third of its value, down 65%.
Causes of the collapse of Bitcoin and cryptocurrencies
One of the reasons for the fall of the most traded digital currency in the world is also linked to the rising rate of inflation in the United States and the decision of the Federal Reserve of that country to raise the interest rate twice so far of the year to contain it. This Tuesday, the Fed will announce a new rate adjustment, which would be 75 basis points.
Analysts explain that when rates rise, the demand for speculative risk assets such as cryptocurrencies decreases. In the last week, Bitcoin lost 28% of its value and it is estimated that the negative streak will continue.
The same situation suffers ethereum, the second virtual currency with the highest capitalization in the market: it falls 10% and is located at US$1,000; so far this year, its value has plummeted 70%.
As expected by analysts, the drop comes as fear grows in the market after the discouraging global economic context. The price of bitcoin fell after the United States government announced at the end of the week an increase in year-on-year inflation of 8.6%, its maximum in 41 years.
Similar to the United States, Europe registers an inflation of 8.1%, its highest peak in 39 years, for which last week it announced that it will increase interest rates. In this way, the old continent joins the American power that had already applied this measure to respond to the price increase.
Such announcements, added to the advance of the Russian war against Ukraine and the probability of a global recession, have caused investors to react by selling their funds in the cryptocurrency. In this way, the movement caused its price to decline and could even take it to lower prices in the coming days, as is currently happening in the stock market.
The decline in the values of cryptocurrencies gave rise to a stage called “crypto winter”: prices fall sharply and surprisingly and no improvement is forecast for the second half of the year.
Now, the total capitalization of this market falls below $900 billion.
The collapse of the cryptocurrency market causes some of the most important companies in the world to announce cuts and layoffs of personnel.
“Extreme fear” in the bitcoin market
According to Fear and Greed Index, Market Sentiment Right Now Remains “Extreme Fear” on a scale of 11 out of 50 from the night. This figure implies a drop of 2 points compared to the previous report, which reflects a slight worsening of this fear that has characterized this year’s bear market.
It is crucial at times like this not to make impulsive decisions and to maintain the trading strategy so as not to get into unwanted situations. Scenarios like this must be foreseen in a risk plan to avoid surprises and manage emotions.
That is why long-term bullish sentiment remains among holding enthusiasts, despite the fact that there is no guarantee of its rise and predictions for the near future remain bearish.
Source: Ambito
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