Many have compared the cryptocurrency market of 2022 to the Game of Thrones episode of Game of Thrones’ “red wedding” episode. The cryptocurrency market has taken a beating since the beginning of the year. But to those who have been around the volatility, it just feels like a regular Tuesday.
According to Trading View, the cryptocurrency market capitalization was approximately $2.25 trillion at the beginning of 2018. Bitcoin traded at $47.833 per coin at that time. We are now at $1.58 trillion in cryptocurrency market capitalization, and have lost $670 billion of market capitalization within four weeks. The market has fallen by 30% since the beginning of the year.
Bitcoin is a significant contributor to this trend, trading at $34,875, which is a price not traded since July 2021. This price point has lost approximately $13,000 since the beginning of the year. As of this writing, the Year-to-Date decline (YtD), is approximately 27.15%.
Bitcoin’s large capitalization and weight on a market led to it contributing $225 billion, or 33.5%, to the total market capitalization loss so far in 2022. It started the year with approximately $877 billion, but now stands at $652 billion.
Many believe that once Bitcoin sneezes the whole cryptocurrency market gets a cold. The altcoin market has experienced significant declines, with most posting double-digit losses. Altcoin market capitalization lost 31.60%, from $1.35 Trillion at the start of the year to $919 Billion at the end of the year. This represents a loss of approximately $431 billion.
Many are now wondering why the market is suffering so much at the start of 2019, which historically has been a bullish year for cryptocurrency. The data suggests that it is a combination, which we will explore in detail.
U.S. Federal Reserve adopts hawkish stance
The Federal Reserve of the United States (Fed) will play a major role. In order to curb rising inflation, the US Federal Reserve (Fed) is likely to raise interest rates multiple times per year in 2022. A rise in interest rates means that more secure investments, such as bonds and commercial paper, will yield better returns. Investors are discouraged from investing in high-risk assets such as stocks and cryptocurrencies, since they can receive higher guaranteed returns on safer assets.
The Fed has so far stated that it will hike interest rates at least three times this year. However, Jamie Dimon, CEO of JPMorgan, predicts that the Fed would raise rates six to seven more times by 2022. The market seems to have priced in these rates, even though the Fed expects rate increases in March 2022. This questioning the notion of Bitcoin as an inflation edge.
Wall Street tech stocks sell-off
The sell-offs on Wall Street, especially on technology-related stocks, are another factor that is causing the cryptocurrency market to bleed. The cryptocurrency market is strongly linked to the U.S. equity market, especially the Nasdaq.
The tech-heavy Nasdaq index suffered a 2.72% drop for the week. This is its largest percentage drop since March 2020. The index had dropped more than 10% since its November peak earlier in the week. This confirmed that it was in a correction. The Nasdaq is now down 14.3% since its November peak. This is due to the steep declines in stocks such as Amazon, Tesla, and Apple which are among the most capitalized companies. Netflix shares fell 21.8% on Friday as well, impacting the S&P 500, Nasdaq and Nasdaq. This was after Netflix predicted weak subscriber growth.
Russia’s Central Bank calls for the ban on crypto
The Russian Central Bank’s proposal to ban cryptocurrency is another factor that has contributed to the market declines. According to the Russian Central Bank, it proposed to the government that all mining and use of cryptocurrency on Russian territory should be prohibited and made illegal. According to the bank, this is due to the risk that cryptocurrency presents to financial stability and sovereignty of monetary policies as well as financial safety of its citizens.
Low Whale funding activity
William Clemente, On-Chain Analyst, also stated in a tweet trend that the main reason for the market sell-off is the low demand for Bitcoin, which in turn points to low funding. He said, “On-chain will show you the supply side. All the assets in the world can be held, but you must have demand for the supply shock to occur. Low available supply and low demand. There have been no shortages for several months. This HODLing behavior is strong, even though it started in July when I first pointed out the bull div. However, there has not been any demand (probably because of macro uncertainty). Although on-chain is still strong, it’s not the end all be all.
William also stated in a tweet that the whale entities, which are big money holders of Bitcoin, have not had much to know about the market. He said, “Whales still missing from November” and included a chart entitled “whales filter for all known entities”, which indicates a decrease in whale activity on the market.
Coinglass data also shows that there are many leveraged longs in cryptocurrency markets, which contributed to Friday’s price collapse. On Friday, $1.14 billion was liquidated. Longs accounted for 86.50%. Bitcoin’s price dropped from $40,000 support to $40,000 on Friday.
Is the Bull Market Over? Expert opinion
Opeoluwa Dap-Thomas, an international market analyst, said that the bull market had come to an abrupt halt. With key support levels broken and the crypto market’s entire value wiped out, and fundamentals pointing to the end of easy money, tapering, and panic gripping the markets, many investors are selling their gains and taking their profits.
“Bitcoin has fallen 50% from its high. If this had happened in stock markets, it would be called a stock market crash. It’s unregulated and has no circuit breakers, so it can easily fall from bullish territory into bearish territory quickly. It has been a risky, speculative asset since its inception .”
Olumide Adesina from Quantum Economics said this: The market can drop by 20% from a high point in the past. This is why the Bitcoin market has entered a bearish market. It has lost more that 50% since November’s record high. However, the market lost a larger percentage which has led to the second-largest dollar decline.
“The cryptocurrency market is responding the same things as risk assets around the globe, Additionally, there is still time to go before any kind of bullishness because a bottom hasn’t formed yet, and confidence hasn’t returned.”
Many people believe that the bull market is over. However, the reality is that a 50% drop in cryptocurrency prices is quite common.
- This is actually the fourth time Bitcoin has fallen more than 50% in the past four years, and it has seen its value rally to all-time highs since then.
- It is important to remember that cryptocurrency markets are highly volatile and speculative assets.