Why is the crypto market down today? Right now, investors are asking that exact question as some the biggest coins in the world crash to lows not seen in months. Recent volatility has turned into a continuous downward slope; currently, Bitcoin (BTC-USD) is seeing losses of over 10% and the DeFi industry is bleeding capital. Last week, a Federal Reserve meeting didn’t seem to shake crypto. Now, though, it may be having more of a negative effect than investors had hoped.
So far, 2022 has certainly looked different from 2021. Last year marked a crypto renaissance; nearly any project could see massive gains as speculative investors searched for the next Bitcoin. However, at the tail end of 2021, an industry downturn led BTC from an all-time high of nearly $70,000 to a low point of $33,000. Being the bellwether Bitcoin is, that drop led to a market-wide crash.
Since then, we’ve yet to see crypto regain its posture. This year, Bitcoin prices have yet to surpass $50,000. That has a lot to do with investors fleeing speculative investments in favor of safer stores of value. Indeed, the Federal Reserve’s attempts to curb inflation seem to be more of a heel to crypto prices than investors had previously thought.
Now, social media is rampant with talk of a downturn in both the crypto and traditional stock market. But why is crypto down today if it wasn’t affected by the Fed’s interest rate hike at first? After all, Bitcoin prices actually increased as the hikes were announced.
The Fed’s Rate Hike Didn’t Stir Crypto Prices Wednesday. Why Is the Crypto Market Down Today?
Well, as it turns out, the hike really did lead to today’s downturn. Analyst Marcus Sotiriou of digital asset broker GlobalBlock conducted a deep dive into the crypto market’s recent downturn, centered largely around BTC prices. According to Sotiriou, Bitcoin’s gains amid the hike were just a “relief bounce.”
When the Fed formally announced its most recent hike, it only implemented a 50 basis point rate hike. That was below the 75 to 100 basis point hike some analysts had expected. So, when BTC prices rose on the news, investors immediately suspected the industry had remained unshaken. As the days have pressed on, though, data shows this is not the case. In the five days since the meeting, BTC has seen losses of over 20%.
Sotiriou says these losses come as investors expect quantitative tightening on the horizon. Speculative assets will fall even further out of favor as a result. Moreover, data in the report shows institutions are becoming less interested in the crypto market as well, investing far less than in previous months.
Looking forward, much of the crypto industry will depend on the Fed’s next move this summer. As safer traditional assets continue to build appeal on the back of rate hikes, investors should watch and see whether institutional interest rebuilds or wanes.
If there is a silver lining in all of this, however, it’s that long-term investors have not been shaken by the volatility. Sotiriou notes that, while speculative investors and institutions are fleeing the crypto market, the percentage of long-term holders is actually on the rise.
On the date of publication, Brenden Rearick did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
