Heading into the fourth week of the month, it’s easy to see why hopes in the crypto market could be completely dampened. Coin prices are currently falling as the entire broader economy continues to slide, and it looks like we’re entering the roughest ride in over a year.
Unsurprisingly, the decline in coin prices has been felt by the largest assets. Names like Bitcoin and Ether are in the middle double digits and some analysts even think that this is just the beginning.
Bigger Economic Problems Hit Crypto
The shift in the crypto market that we are witnessing started about two weeks ago when coins started showing signs of weakness. Bitcoin fell through several critical points of support as the price started a dangerous decline towards the $35,000 trendline. While analysts understood that this was simply a response to the struggles of the traditional market, hardly anyone knew how bad it was going to get.
Things got much worse when the Federal Reserve announced it would raise interest rates — an event many in the market saw coming. The rise in interest rates was due to the government’s desire to control spending and keep the money supply relatively scarce. After two years of relative abundance due to excess money printing in response to the coronavirus pandemic, the Federal Reserve’s goal is now to shrink the money supply in an effort to keep inflation in check.
Interestingly, there are signs that we could see further increases in interest rates over time. The Fed’s goal is to keep inflation below at least 10 percent, and it would most likely try to use as many weapons as possible under its arsenal.
In addition to the rate hike, the Fed also released figures for the Consumer Price Index (CPI) this week. The data showed that commodity prices are still rising, although this jump has also slowed down in the past month.
As the CPI figures showed, the total price of consumer goods and services is up 8.3 percent year-over-year. That is a 0.2 percent decrease compared to March. The number is lower than many analysts had expected, and while this is good news for consumers and the wider economy, it remains a breeze if everyone had wished for better interest rates.
Can it get worse?
In response to the rate hike, the crypto market began to bleed terribly. At the time of writing, Bitcoin’s price is down 6.18 percent in the past 24 hours and 20.96 percent in the past week. Ether is down 12.27 percent and 27.72 percent respectively in both periods. Several other large-cap coins have also seen their prices plummet as investors are now rushing to stablecoins instead.
And things still seem to be headed for some dark days. Data shows that most crypto gainers in the market are stablecoins – understandable as most investors would now run to these assets as a safe haven. On the other hand, we see coins like Terra’s LUNA token, which has lost up to 99 percent of its full value in the month.
The current market situation is one of free fall. No one really knows how bad things can get, and there are certain levers that can be used to cause even worse results.
One is the institutional game. Big companies like MicroStrategy and Tesla own billions of dollars in Bitcoin and their wallets are falling almost by the day. If the boards of these companies decide it is time to sell their crypto stock, they could flood the market and drive the price of the coin down even more. And as we all know, a crash in the price of Bitcoin will eventually spill over to other coins.
Hope for investors right now?
The way things are now, it’s hard to see things getting better in the short term. However, this is what makes the crypto market so interesting. Even a close look at some of the biggest names on crypto Twitter will show that many are advocating the same thing: buying the dip. As they explain, the crypto market has been here before. Investors who are patient enough will eventually see gains.
To be fair, they are right. The market has gone through some pretty tough times in the past and has always managed to bounce back from this. But the question now is whether investors want to wait that long.
The last time the market lost gains in this way was in 2018. At the time, coins had just reached all-time highs and were making a huge surge. But when January 2018 arrived, it all came crashing down as the coins tumbled significantly. It took up to three years before we could have another massive bull run that would hit investors again. Will today’s investors be willing to wait three years?
Buying the dip can be fun if you don’t have a skin in the game. And right now seems to be a perfect time for novice investors to actually enter the market – after all, what have they got to lose? However, for those whose gains have already been wiped out, this market downturn serves as a stark reminder of the challenges of investing in any space – let alone one as volatile as crypto. It’s good when it’s good, but you also need to prepare for the downturn.