Why Crypto Is Down Today – Forbes Advisor

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On Monday, the price of Bitcoin and other cryptocurrencies fell to new lows in 2022 as investors continued to unload risky assets in response to persistently high inflation and a tightening of the Federal Reserve’s aggressive monetary policy.

Cryptographic losses

By noon, Bitcoin prices had fallen more than 7.5% in the previous 24 hours, with BTC trading below $ 32,000, its lowest level since July 2021. Ethereum prices fell 7.7% at less than $ 2,330, while Litecoin and Bitcoin Cash prices were down more than 12%.

Bitcoin prices have now dropped 34% so far and are trading well outside of their all-time highs of around $ 69,000 in November 2021.

Stock market sales also continued on Monday, with the S&P 500 falling 2.5%, the Dow Jones Industrial Average (DJIA) 1.4% and the Nasdaq Composite 3.8%.

Crypto is now strongly correlated with stocks

Many investors in cryptocurrencies have argued that Bitcoin is a new version of gold for the digital age, a potential investment in security and hedging against inflation.

But price action on cryptocurrencies suggests that the market does not seem to see these highly volatile assets as reliable stores of value during periods of economic uncertainty.

Historically, gold has been inversely correlated with stock prices, a relationship that has developed as expected so far in 2022. Although stock prices have fallen, the price of gold has risen 3% in 2022, while The S&P 500 is down about 16% a year. To date.

Stock market pressure was driven mainly by fears of persistently high US inflation and the potential for extremely aggressive Fed action to counter it. The Consumer Price Index (CPI) rose 8.5% from a year ago, the highest inflation rate in the United States since 1981.

Earlier this month, the Fed raised interest rates by 50 bp to a new target range of 75% to 1%. At his post-announcement press conference, Fed Chairman Jerome Powell said there were additional increases of 50 bps at the next two FOMC meetings.

The Fed will also begin allowing $ 30 billion in U.S. Treasury bonds and $ 17.5 billion in mortgage-backed securities to be withdrawn from its balance sheet beginning in June.

Brian Price, senior vice president of investment management and research at the Commonwealth, says the path to lower resilience in risky assets remains negative at the moment.

“The overwhelming focus remains on inflation, rising interest rates and the war in Ukraine,” says Price. “The market lacks major positive catalysts right now, so it’s no wonder we start the week under pressure.”

The sale of shares confirms that investors are seeking refuge from the potential negative economic impact of the Fed’s tightening, and are simply not looking for it in the cryptocurrency market.

What you need to know about investing in cryptocurrencies

The first investments in Bitcoin, Ethereum and other cryptocurrencies made a killing. But the cryptocurrency market has a long history of extreme volatility, which is not what investors are looking for in uncertain market conditions.

In fact, Bitcoin has had several deep setbacks of over 80% throughout its history, including an accident of approximately 80% in 2018.

Like most other cryptocurrencies, Bitcoin is not tied to physical assets or intellectual property, and does not generate cash flow or pay dividends or interest to investors. By contrast, the price of Bitcoin is tied exclusively to supply and demand, making it difficult to assess its core value, experts say.

Berkshire Hathaway CEO and investment legend Warren Buffett recently discussed Bitcoin’s shortcomings at Berkshire’s annual investor meeting, telling investors he wouldn’t pay $ 25 for “all of the world’s Bitcoin.”

“I do not know if it will go up or down next year, five or ten years. But what I’m sure of is that it doesn’t multiply, that it doesn’t produce anything, “he said.

Bitcoin and other cryptocurrencies can finally see their volatility and correlation with other risky assets. Still, recent price action in the cryptocurrency market suggests that the bumpy journey could continue for short-term cryptocurrency investors.

The next potential stabilizing catalyst for the market could be on Wednesday when the Department of Labor publishes its CPI reading for April. The pace of inflation is likely to go a long way in determining whether or not the Fed will continue with its 50 bp rate hikes or reverse its tightening to 25 bp increments.

In addition, investors in cryptocurrencies should monitor recent instability in the controversial TerraUSD (UST)-supported stable currency (UST). Terra currently has $ 3.5 billion in Bitcoin to support its token, and some crypto investors are worried that it may be forced to sell to support the UST price.

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