The current year, 2022, has not been much profitable for the world of cryptocurrencies and on the contrary, the world of digital tokens has seen more crashes than gains. After months of a Covid-19 wave and ongoing war, the global cryptocurrency market appears to be losing ground, plunged below $1 trillion since January last year. Crypto investors have had a lower risk appetite and their fear levels have exceeded expectations.
Bitcoin, the world’s largest cryptocurrency, has lost most of its gains to hit an 18-month low by hitting the $22,000 level on Tuesday, June 4. Bitcoin is down more than 25 percent in the past week. On the other hand, Ethereum, the world’s second most popular cryptocurrency, has fallen more than 33 percent in the past week to dangle near $1,100.
Why is the cryptocurrency market growing?
The cryptocurrency market largely mirrors global equity markets, and a sell-off in the traditional markets on Friday, June 10, led to a contagion effect as crypto began to fall rapidly. Rising expectations of a sharper Federal Reserve rate hike to fight inflation has led to an evaporation of investor risk appetite across the board, with numerous indices officially entering a bear market,” the CoinDCX research team said. Market sentiment has fallen to a new fear level of 8, the lowest level in nearly two years.
“Cryptomarkets have corrected due to weak global signals. Internationally, equity and crypto markets have become highly correlated. Global inflation is also a major concern for investors. In the US it is at a 40-year high at 8 “6% and in the UK at 9%; rate hikes in major crypto countries are also a growing concern as they reduce liquidity. Both indicators have led to a huge sell-off,” Rajagopal Menon, vice president of WazirX, told News18 .com.
The ongoing sell-off will depend on the Fed’s announcement of its rate hike. “Most investors will look forward with interest to the US Federal Open Market Committee meeting scheduled for June 14-15. A Fed rate hike is already priced in; however, most investors worry that unless inflation numbers begin to fall rapidly, the Fed will likely have to tighten governments at a faster rate than expected,” said Darshan Bathija, Vauld CEO and co-founder.
What’s next for crypto investors
Experts said cryptocurrency has entered bear markets at this point, but remained hopeful that prices would eventually rise. “We’ve seen corrections like this in recent years, followed by consistently high prices. Investors who bought at a high price are the ones who panic when prices drop to the bottom, but they must remember that we are in the bear market and prices will eventually rise again,” Kumar Gaurav, CEO and founder from Cashaa, told News18.com.
Suman Banerjee, CIO of a Hedenova, US-based Hedge fund, said new investors should wait for an expected “crypto winter” and invest at that point to maximize profits. “I think we will see the crypto winter, like what happened between 2017 and 2020. I would advise new investors to wait for that time and use the momentum when Bitcoin prices rise again.”
However, Gaurav advised new investors to buy the dip. “Anyone who is interested in crypto but has not invested so far should do their own research and find out what is the best time for them. Right now, they can get Bitcoin or other cryptocurrencies at a discounted price,” he said.
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