Some Possible Reasons Behind the Current Crypto Market Crash
2022.05.09 15:36
Some Possible Reasons Behind the Current Crypto Market Crash
- Crypto asset markets continued their downward spirals over the weekend.
- The Federal Reserve raised interest rates by half a percentage point last week, to which Wall Street reacted with a stock slump.
- Another possible reason for the recent bearish price actions could be a drop in institutional interest.
Crypto asset markets continued their downward spirals over the weekend, reaching their lowest levels this year. Crypto capitalization has fallen to its lowest level in ten months and a further $130 billion has left the market over the weekend, resulting in a market cap slump to $1.62 trillion.
One of the reasons for this might be the fact that the Federal Reserve raised interest rates by half a percentage point last week, to which Wall Street reacted with a stock slump. The crypto markets followed suit and shed about 10% or $200 billion over the last seven days.
The senior market analyst at OANDA, Edward Moya, states that crypto markets are known to correlate with indexes like Nasdaq. He supported this statement when he stated that while the tech-focused index is down 21% this year, Bitcoin is also down by 22%.
Another possible reason for the recent bearish price actions could be a drop in institutional interest. 2021 was very bullish for institutional investments, but the trend did not follow through to 2022.
2021 saw names like Tesla (NASDAQ:TSLA) and MicroStrategy getting into crypto and driving the momentum and buying pressure. 2022, on the other hand, has been a lot more subdued as there has been around four weeks of institutional outflows.
Investors also seem to be reacting to what is happening in the broader economy as there appears to be a lot more confidence in traditional assets after the shock of the Covid-19 pandemic has blown over.
Lastly, crypto markets are cyclical, which means that what goes up must eventually come back down. There have already been around four distinct bull markets since Bitcoin was started, but if history were to repeat itself, the market may remain bearish for the rest of the year into 2023.
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