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What Is Happening to Bitcoin? Why Does it Keep Dropping? The Big Crypto Crash!
Bitcoin’s price continued to fall Wednesday, reaching its lowest position since late February. It’s clear the currency was not satisfied with simply erasing its recent gains.
Furthermore, Bitcoin fell eight percent in under 24 hours, dipping below $36,000 before recovering. The cryptocurrency market as a whole dropped seven percent within the same time period, with Ethereum losing seven percent from yesterday’s price and the rest of the top 10 losing between five and nine percent.
The well-known Bored Ape-adjacent governance coin ApeCoin, the native asset fueling the Near Protocol, and the rapidly growing “walk-to-earn” coin STEPN are among the industry’s biggest losers.
Cryptocurrency asset values were considerably higher only yesterday, climbing alongside equities on Wednesday after the Federal Reserve announced an increase in the interest rate that was marginally lower than various traders anticipated.
The Dow Jones Industrial Average increased by 2.8 percent, while the Nasdaq Composite increased by 3.2 percent.
That was, however, on Thursday (5 May 2022).
On Friday, the Dow Jones and Nasdaq fell 3.1 percent and five percent, respectively. This means the Dow Jones had its best daily gain since 2020, followed by its worst daily loss since 2020.
The story goes that investors were relieved on Thursday that the Fed’s inflation measurements had been measured, only to realize on Friday that the 0.5 percent point hike in interest rates is still extraordinarily high by historical standards.
On the crypto front, which is used to instability, things are less dramatic.
Bitcoin has seesawed up and down since starting the 2022 year at $46,700, seldom rising over that level. As per CoinMarketCap data, it is currently decreased by over 21% for the current year.
These losses are similar to those of stocks, particularly those of tech firms. Since the beginning of the year, Microsoft has lost 17% of its value, Alphabet, the parent company of Google, has lost roughly 20% of its value, and Facebook’s Meta has dropped 34% of its value.
Does the Fed’s Rally Have Anything to Do with Bitcoin’s Price Drops?
It is clear that all the current volatility surrounding the entire crypto market stems from the US Federal Reserve’s hawkish actions. Jerome Powell, the chairman of the Fed boosted interest rates by half a percentage point, which is the biggest increase since 2000.
When the Fed increases interest rates, it raises the cost of borrowing money for both people and institutions. It also has the unintended consequence of encouraging individuals to save money. When taken collectively, the rate hike is intended to slow the rising inflation of the economy, which has been progressively increasing due to supply shortages and the ongoing crisis in Ukraine.
Interest rate hikes often put adverse pressure on the stock market, including cryptocurrency.
The rise in prices in both the cryptocurrency and regular markets looked to be fueled by investors’ satisfaction that the interest rate hike was not higher. “A 75-basis point rise is not something the committee is actively considering,” Powell mentioned, adding that the market has a “good chance to have a soft or softish landing” after last year’s strong bounce.
However, the market now seems to be rectifying its course.
A closer look at the larger financial market indicates a few major investor patterns. Hence, for one thing, the Nasdaq 100, which is heavily weighted in technology, has dropped about five percent since the market started.
Stocks in crypto-related companies such as Tesla, Coinbase, PayPal, Microstrategy, and Robinhood are included in the index.
The Brian Armstrong-led cryptocurrency exchange’s stock has decreased 11.3 percent, the Bitcoin-proxy stock MSTR dropped approximately 12.3 percent, and the shares of the electric car maker, Tesla, are down almost eight percent. PayPal and Robinhood both fell 7.56 percent and three percent, respectively.
The Bottom Line
Overall, there seems to be a great deal of uncertainty in terms of the crypto industry at the moment. Bitcoin and other leading digital assets seem to be dropping in price by large percentages. It’s clear that the Fed’s interest rate increase is having a greater impact on this market than was initially believed.