Why Is The Market Crashing?

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After the great fall in February and subsequent months after, Bitcoin managed to rise back as high as 65k but things are starting to look gloomy once again. A lot of investors wished and hoped the new year would herald even greater things for Bitcoin and the entire market, but it seems we might have overstretched our luck. Bitcoin has been on a steady decline for weeks now and it got even worse at the beginning of last week. A sharp rise was seen on the 20th of January which made many think things would keep rising from that point but we were suprised by an even steeper slope. Currently, Bitcoin is at 35k(+0.75%) as at 23rd of January and while we continue to hope here are reasons why the market has experienced huge decline.

It's plummet started slowly late last year in November as fears intensified over the new COVID-19 variant Omicron -a potentially vaccine resistant variant and the high inflation rate in US and UK markets. With the growing concern of these inflation rate coupled with the Omicron variant selling frenzy and a gradual decline began in the market. The consumer inflation rate in the US hit records high and the upcoming Federal Open Market Committee is expected to announce new interest rates pretty soon. Hikes might rise above 0.25% to as high as 0.9-1% by the end of 2022. Most investors have been forced to sell off riskier assets like Bitcoin for safer ones due to fear of new lockdown restrictions, especially after experiencing how badly markets were affected last year and the year before. Smaller coins which happen to move in the same direction as Bitcoin have also suffered similar fate as Ethereum plunged as low as 11.6% to its lowest in a week.

Next came the big announcement from Russia, the third largest Bitcoin mining hub triggering a steady decline just like we witnessed mid last year and so causing more investors to go short due to fear. Russia's central bank called for a blanket ban on crypto trading, mining and usage in the country. Although not yet in action, once in effect will only permit owning cryptocurrencies while other activities like mining will remain banned. They have backed their proposal with the illegal activities that have been linked to cryptocurrency in the country as well as the excessive energy demands due to mining in the region. Growing concerns over financial instability were also highlighted as risks posed by the volatility of the crypto world.

Due to fear of the crash in 2021 repeating itself, a selling spree started majorly among newbies and other investors while causing the market to decline even farther. While veterans are hodling, no one is certain how long this fall will last for as investors are turning to more stable form of investment. But I believe this steady decline can be slowed when more investors learn to stop selling off at every red signal they get. Although this might help weed off the paper hands ,it might slow down the wider adoption and evolution we hoped blockchain would gain in the world. As at the time of writing this article, Bitcoin has been slowly climbing back up at 3.62% and I do hope investors learn to stop swaying with the storm but stand their ground against the bears.



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1 comments
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Wonderful article. I have been wondering what caused the massive dip in the price of BTC, this awesome article, seems to have answered my question adequately.

A big shock with the ban of crypto in Russia. Advanced countries are supposed to be adopting crypto and not banning it.

With time, this volatility of price will reduce greatly, as people would reduce panic selling which is the major cause of the dip in price of crypto assets.

A very well written article @valchiz. Thanks for such a great informative article.

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