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Crypto Prices Tumble In Market Correction

Cryptocurrency prices and the stock market are on the decline to start the new year.  Bitcoin, Solana, Ethereum, XRP, BNB and most stocks have dopped 5-10% or more in the initial weeks of ’22.  Part of the strengthening bearish crypto sentiment is the fact that the Russian government is likely to ban all cryptocurrencies at some point in the months ahead.  

Bitcoin Drops Below $40,000

Investors often like to discuss how certain benchmarks have psychological importance.  In the context of Bitcoin, the $40,000 benchmark is especially important.  Bitcoin dropped below the $40,000 mark earlier this week in response to reports that Russia will likely ban Bitcoin and other cryptocurrencies.  The country’s central bank has proposed an across-the-board ban on the mining and trading of crypto of all types.

Bitcoin, the top cryptocurrency in the world, has dropped slightly more than 8% in a mere 24-hour period, sliding below $39,000.  Bitcoin’s little brother, Ether, dropped 10% in the same period of time, barely remaining above $2,800.  In aggregate, $200 billion of value was plucked from the cryptocurrency market in 24 hours.  However, it is Bitcoin’s decline that is especially concerning.  Bitcoin has not traded as low as $38,000 since the summer of ’21.  

Crypto And Stocks Are In A Bear Market

Cryptocurrencies aren’t the only asset on the decline to begin the new year.  The NASDAQ has entered correction territory in merely one month’s time.  The prospect of the Fed raising interest rates along with runaway inflation and an insufficient labor force have sent investors scurrying to the sidelines.  However, those same investors are not redirecting their money to crypto.  Rather, it appears as though the top players are investing in precious metals and remaining liquid to ride out the storm.  

The crypto market has suffered a $1.2 trillion loss after reaching its peak of $3 trillion this past fall.  Stocks have tumbled in unison with crypto yet most publicly traded companies haven’t suffered as massive of a decline as Bitcoin.  The popular cryptocurrency is down nearly 50% from its height of $70,000 per coin.

Will The Markets Recover In A Timely Manner?

Investors are hesitant to pour money into crypto or stocks simply because the federal government’s stimulus dollars appear to have come to an end, inflation is creeping ever-higher and interest rates are likely to escalate in the months ahead.  As a result, cryptocurrencies endured a fifth consecutive week of declines.  Outflows from crypto for the 5-week period have topped the $530 million mark, representing the sharpest outflows dating all the way back to ’18.

Financial analysts insist the Fed’s willingness to raise interest rates will temper a potential bull run yet there is the potential for the crypto market to rebound in unison with the stock market.  As an example, GlobalBlock analyst Marcus Sotiriou, anticipates a strong upside squeeze for Bitcoin as well as the entire crypto market.

It is also worth noting the Fed released a report pertaining to a digital dollar that some are referring to as the central bank digital currency or CBDC for short.  This digital dollar would not take the form of Bitcoin.  Rather, it would draw inspiration from Bitcoin, meaning there is the potential for the new digital currency to undermine Bitcoin and other cryptos at some point down the line.

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