Anyone who follows the cryptocurrency market knows that the market crashed and burned this week. The only remaining question is why.
The truth is that there is no clear solution, albeit a combination of variables may be to blame.
Rising inflation, interest rate rises, and geopolitical uncertainty brought on by the Ukraine conflict might all be contributing factors, according to Alkesh Shah, global crypto and digital asset analyst at Bank of America.
These problems have produced significant headwinds for the cryptocurrency market. In April, consumer prices climbed more slowly than in March, but still faster than experts had predicted. This month, the Federal Reserve raised interest rates by half a percentage point.It is the first time in 22 years that it has done so. And Russia’s invasion of Ukraine shows no signs of slowing down.
As a result, crypto took a major hit this week, losing $200 billion in only 24 hours on Thursday.Bitcoin, which accounts for over 44% of the cryptocurrency market, has plunged to a 90-day low of $26,350. According to CoinMarketCap, the cryptocurrency returned to over $30,000 on Friday, but it was still down 15% for the week and more than 56% from its November high of $69,000.
Another issue pulling down cryptocurrency is its link to the stock market, which has lately fallen. Bitcoin is behaving more like a risk asset than an inflation hedge, according to the Bank of America.Bitcoin, the most valuable cryptocurrency by market capitalization, has a lower correlation with gold, the most well-known store of value, than it does with the S&P 500 and the tech-heavy Nasdaq.
Because crypto behaves more like a tech stock than an inflation hedge, when tech stocks fall, digital assets fall as well. Tech stocks had a rough start to the week, with the Nasdaq falling 4% on Monday, then falling another 3% on Wednesday before reclaiming some ground on Friday afternoon. In a dismal week for the main averages, the Dow down more than 2%, the S&P 500 plummeted 2.5 percent, and the Nasdaq sank 3 percent.