Categories: Technology

What is the reason behind the 2021-22 crypto crash?

Introduction 

We are all aware that trading has grown increasingly popular in recent years. Some people see trading as a career, while others see it as a source of passive income. However, despite visit website as Bitcoin is presently trading at over $35000, causing worry among many investors, who may be selling up their investments. The currency has dropped more than 40% since its all-time record of $69,000. In the meantime, the virtual currency market valuation has fallen by more than 12% in the previous 24 hours. What is causing this enormous sell-off? Let us see what happens.

A crash happening 

Aside from stablecoins, every one of the top 100 global cryptocurrency assets is presently negative, with several losing up to 30% of their value. Ether’s second-largest cryptocurrency has fallen below the $3,000 support level. It has dropped to $2,400 in the previous 24 hours, down 15%. Binance Coin, the fourth biggest cryptocurrency, has lost over 17% of its value, while Cardano has lost over 15%. Dogecoin has dropped by nearly 13%, while Solana and Polkadot both have dropped by 20%. Meanwhile, according to coinmarketcap.com, the crypto market capitalization has dropped by more than 12% in the previous 24 hours.

What was the catalyst for the accident?

The Russian Central Bank’s plan to prohibit cryptocurrencies is the primary reason for the recent sell-off. It was announced by the Russian Central Bank yesterday that it was recommending to the Russian government that all cryptocurrency use and mining be prohibited on Russian soil. The bank stated that it will take this action because of the threats that cryptocurrencies brings to economic stability, monetary policy independence, and public financial safety. In the past, the country’s legal position of cryptocurrencies has altered dramatically. Despite years of opposition to cryptocurrencies due to concerns about terrorist financing, Russia granted legal status to cryptocurrencies in 2020. The usage of the coins as a means of payment, however, was prohibited.

What additional variables influence the downward trend?

A big section of the industry was already in the red before reports of the Russian Central Bank urging an immediate ban on Bitcoin.

  1. The hawkish attitude of the Federal Reserve – Wider macroeconomic circumstances, the Federal Reserve’s aggressive approach and decision to increase policy rates as early as March, and lower-than-expected results from technology companies have all influenced the market. The US Federal Reserve’s hawkish posture has made investors more wary of investments, while negative macroeconomic data because of the rising COVID-19 surge has made debt levels much more appealing to investors.
  2. A sell-off on Wall Street – Riskier assets, such as Bitcoin and securities in technology and development industries, has suffered as a result. Earnings for technology firms have also been weaker, exacerbating the market’s overall pessimistic attitude.
  3. Linkage with existing markets is becoming stronger – Furthermore, market analysts feel that Bitcoin’s association towards Wall Street is increasing because of corporate interest in the cryptocurrency markets. As a result, when there is a sell-off on Wall Street, it overflows through the cryptocurrency world.
  4. Long holdings that have been leveraged – Another cause for the sell-off, according to a CoinDesk article, is a stretched margin account. Long-term investors who expected the price of cryptocurrency to climb are now liquidating their stakes. Over $1 billion in long bets were liquidated in the previous 24 hours, according to coinglass.com. At $250 million, Bitcoin was the most liquidated cryptocurrency, backed after Ether at $160 million.

Once investors do not have enough money to cover the margin call, the market will liquidate. Now, word of an anticipated ban has worsened market mood at a time when global forces have already pushed the cryptocurrency market down. Even if we recognise or acknowledge that we are living, there is still a fear working, which is leading to asset sales. When panic selling is combined with advantage, the outcome is frequently a nightmare for a marketplace that deals 24 hours a day, seven days a week. Despite the fact that this is not the first huge drop in crypto in the last two years, investors believe that even a 30% drop is only a blip in the larger bull market.

 

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