Reasons for the decline of digital currencies – Al-Ahram Gate

The cryptocurrency market is witnessing more turmoil at the beginning of September, as Bitcoin fell below $19,000 on September 7 and reached its lowest level in two months, and since then it has been trying to rise and stabilize above the $20,000 level, and Ethereum succumbed to selling pressure to decline To the $1,500 level, but is now showing more strength, as a result, the market as a whole fell below the $1 trillion mark for the first time since early July, bringing the total cryptocurrency market cap to $983.38 billion, a far cry from the $3 trillion mark. trillion dollars in November 2021.

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There is no new fact that explains the decline in the prices of cryptocurrency trading, but the reasons behind these movements are the result of the exhaustion of buyers while they are wary of the uncertainty in the macro scenario.

Analysts believe that every failed attempt to break the resistance area above $20,000 raised the possibility of testing the bottom of the price range near $18,000. Also, historically September has been a negative month for the crypto asset class.

The recession in September is happening because the economy is still resilient and is paving the way for further monetary tightening and rate hike by the Federal Reserve and this could cause trouble for Bitcoin. Experts predict that the current drop in Bitcoin could reach $15,000.

Causes of Bitcoin’s Sharp Losses

Before Bitcoin hit some snags last month, the original cryptocurrency was trading around $25,000 on August 14, a significant improvement over its June price when it found its bottom, dropping to a 13-month low of $17708 on June 18. The drop came on the heels of news that several crypto companies are facing a liquidity crunch.

1 . company bankruptcy Celsius

Several days before the bottom of Bitcoin was reached, the cryptocurrency lender stopped Celsius Temporarily withdrawing customers due to “extreme market conditions,” andCelsius It has frozen customer withdrawals and transfers since June 13, and the crypto company filed for Chapter 11 bankruptcy protection on July 13 after a month of turmoil.

was a companyCelsius It is a decentralized financing platform.DeFiOne of the largest cryptocurrency lenders, a major source of negative bitcoin market sentiment in mid-June, gainedCelsius followers in the crypto world by announcing that users can earn an annual return (APY) reached 18% by depositing their holdings of cryptocurrencies on the company’s platform, and it had as many as 1.7 million customers.

The company takes cryptocurrency deposits and lends them to investors and other financial institutions In a process similar to traditional bank lending, users earn a return on the proceeds Celsius cryptocurrency borrowers.

The company had $11.8 billion in assets under management (AUM) As of May 17, down from more than $26 billion in October last year, in June the company stopped disclosing total assets under management on its website.

2 . box disaster Three Arrows Capital (3AC)

In addition to cryptocurrency bankruptcies, it was reported from approximately June 16 to 17 thatThree Arrows Capital (3AC) A Singapore-based crypto hedge fund was insolvent and on June 27 defaultedThree Arrows Capital About repaying a loan from Voyager DigitalThe loan amounted to approximately $350 million in crypto assets and consisted of USD Coin (USDC) and about 15,250 bitcoins, as was the 3 . companyAC A major supporter of TerraUSD / LUNAIt is the epicenter of the stablecoin crash in May.

The series of liquidation led by cryptocurrency lenders such as BlockFi And the Voyager And the Celsius to disaster for 3ACThis led to the company’s bankruptcy.

Bitcoin prices are now down more than 60% year-to-date, trading off all-time highs of around $69,000 in November 2021, and experts also say that Bitcoin is no longer seen as having an inflation hedge, and it’s traded more cheaply. Close with stocks that are also in a downturn.

3 . Investors’ aversion to risk after 2020 and 2021 gains

Bitcoin finished 2021 up nearly 70%, that’s a fantastic return for any asset class, let alone a class without any tangible value or total belief that it has a national economy behind it, however, the 70% annual return is a dip after gaining more than 300% In the year 2020 devastated by lockdown.

One market expert says investors in 2022 are risk averse, embracing a “general journey to safety across all asset classes,” as investors have shown more interest in value-based investments and less interest in speculative stocks and alternative ‘value equity’ investments.

4 . Tight monetary policy by the Federal Reserve

The Federal Reserve is fighting a historic rise in inflation comparable to anything we’ve seen in the past four decades. It’s unclear how many rate hikes will remain for the remainder of the year, but analysts expect the central bank to keep raising rates through the end of the year and into 2023. The federal funds rate ends the year at 3.5% or higher according to some estimates.

When the Federal Reserve raises interest rates, it reduces the demand for more riskier assets such as technology stocks and speculative assets such as cryptocurrencies and bitcoin.

Bitcoin is a risky asset

Stocks, commodities, high yield bonds, and cryptocurrencies (Bitcoin) are risky assets because you can expect their prices to rise and fall frequently under almost any market conditions.

Until recently, Bitcoin was considered a store of value somewhat immune to volatility, this is no longer the case, today the primary digital currency and the broader crypto market are influenced by economic phenomena that drive the importance of risky assets such as inflation, stock markets and federal monetary policy.

The reason this particular drop has occurred this year is because market narratives have shifted from risk to no risk, liquidity is drying up as the Fed and other central banks begin to scale back excess stimulus.

Some people are optimistic

One expert is of the opinion that Bitcoin could drop below the $20,000 mark, though not to worry, as a dip below $20,000 will create a lot of buying pressure, and it will quickly bounce back to 20,000.

still company MicrostrategyOptimistic about Bitcoin, when it fell Microstrategy In August 2020 her bitcoin strategy is complete, she may again consider buying more bitcoin as she sees it as an ideal entry point to buy it, and her CEO believes that the initial cryptocurrency is the best performing asset in any time frame whether it be two years, five or ten Years.

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