Bitcoin Drops Again: What Is Happening in the Market
On June 14 the record-breaking Bitcoin price drop was noted. Throughout the day the price had been fluctuating under $22 thousand. All in all Bitcoin dropped by 36% during the last week. What we are witnessing now is nothing but another market collapse: after crypto lender Celsius blocked all redemptions due to “extreme market conditions”, the company’s token lost 50% of its price. Experts have found certain factors that lead to the current state of the market.
Inflation and Stock Market Reaction
The main reason for the crypto market collapse is possibly the same as that for the stock market. Inflation in the US is at a 40-year high, marking an estimated 8.6%. The reaction of both the stock market and the crypto market was a rather predictable drop. ENCRY Foundation co-founder Roman Nekrasov explains that such a high inflation rate suggests the US Federal Reserve is going for an increase in the key interest rate.
“The increase in the rate leads to a decrease in the availability of loans, that is, to a decrease in consumer activity. This entails a slowdown in economic growth,” — Roman Nekrasov, co-founder of ENCRY Foundation.
At the same time, a rate hike means higher yields on instruments such as Treasury bonds, prompting many investors to reconsider the proportion of high-risk assets in their portfolios, according to Nekrasov. He believes that investors are moving away from high-yielding but high-risk assets such as stocks or cryptocurrencies in favor of low-risk assets, whose returns are now higher than they used to be.
Fear and Risks
The situation is exacerbated by the fear associated with the consequences of the Luna/UST collapse. Market participants are reasonably expecting further crashes of other cryptocurrencies. In attempts to secure their savings they close positions in digital assets.
Senior analyst of BestChange.ru Nikita Zuborev adds that the crypto market is overflowing with rumors and conjectures that fuel the fear. According to him, after the UST collapse investors, without understanding the specifics, try on the same scenario for other stablecoins. This only adds up to the fear and insecurity.
The True Reason
Nevertheless, the factors mentioned above are only a part of the bigger picture. Nikita Zuborev admits that the stock market situation and the price fall-induced panic are only “catalysts” to the recent events. The true reason, according to the analyst, lies in the natural cycles of the market. Such market behavior was quite predictable. Although many forecasts did not consider the sharp continuation of the “bearish trend”.
«Today, bitcoin is near the mark that we expected to see by the fall and considered the peak of a possible fall. It is difficult to assess the prospects of the market in such turbulent conditions, but we expect a relative stabilization of the situation in the coming weeks,» — Nikita Zuborev, senior analyst of BestChange.ru.
The analyst suggests that the market has possibly reached the rock bottom already, but there is a possibility for more negative scenarios to unfold. This can be assessed by observing the market behavior during the next few weeks.