The cryptocurrency market has endured nothing less than a bloodbath in recent days. Bitcoin, the world’s most popular cryptocurrency, fell near the $25,000 per day level, drastically lower than its all-time high of $69,000. Other altcoins also suffered, pushing the global cryptocurrency market cap to just $1.12 trillion. Major cryptocurrencies such as Ethereum, Solana and Cardano fell by double digits, bearing the brunt of the market. But what has caused such a sharp dip in the cryptocurrency market?
The reasons for this are many. Beginning in 2022, cryptocurrencies, some of which soared to their record highs in previous years, began trading in the red and have been in a downward spiral ever since. At the start of the year, the dip was mainly attributed to a new wave of the pandemic and just as the situation began to stabilize, developments in the global economic scenario due to geopolitical tensions and inflation.
“The significant dip observed in crypto is a global phenomenon. It can mainly be attributed to developments in the macro environment such as rising inflation, Federal Reserve rate hikes, the war between Russia and Ukraine, etc. It is also interesting to note that crypto markets mirror traditional financial markets as both see a correction. It indicates that the crypto markets are maturing – just like other markets, crypto is also having a bear-and-bull run and right now we are going through a bearish phase,” said Nischal Shetty, co-founder and CEO of WazirX.
The Crypto Fear And Greed Index was in the “Extreme Fear” zone, indicating that investors were too concerned and selling their positions to minimize losses. What catalyzed the bearish sentiment was that the Fed Reserve announced that interest rates would rise by half a percentage point. Market participants began to panic about inflation and a potential recession, causing stocks and crypto markets to collapse,” said Darshan Bathija, CEO and co-founder of Vauld.
Bitcoin feels the heat
Bitcoin prices, which hit their all-time high in 2021, plunged near $25,000 on Thursday, after a steady dip over the past week. The world’s most popular cryptocurrency lost 30 percent of its day-to-day value as market participants panicked over several issues.
“While Bitcoin fell to levels near $25,000 yesterday, it stabilized around the $29K level in the later hours of US trading sessions. With BTC, most altcoins also registered sharp declines,” Bathija said.
“Data showed that BTC exchange rate inflows have remained relatively high in recent days. Investors often transfer their holdings to exchanges when they plan to sell,” he added.
Luna moves far away from the top 10 list
At the time of writing this article, Luna was ranked at 230 in the cryptocurrency index, according to CoinMarketCap, and was valued at $0.00003872, 99.99 percent below the stable value of $88. The extreme volatility led to the shutdown of the Terra blockchain. “The Terra blockchain has officially stopped at block 7607789,” Terra said on Twitter on Thursday.
“Terra (LUNA) has had a week-long whirlwind with the token tumbling at an alarming rate. The debacle started when Terra’s algorithm-based stablecoin TerraUSD(UST), which is pegged to the dollar, fell sharply to nearly $0.6. With that, Binance, one of the top global crypto exchanges, temporarily halted the withdrawal of UST and LUNA. All of this led to a cascading effect on LUNA’s prices, causing it to spiral out of control. The daily chart for LUNA has broken below the rising channel pattern,” according to the WazirX Trade Desk.
“Contributing to the current market problems was the de-pegging of the stablecoin UST. As the de-pegging intensified, LUNA prices fell to $0.009598. As a result of this sharp price drop and high inflation, the team behind LUNA, Terraform Labs, has decided to shut down the blockchain briefly and restart it after implementing a patch. This was done to “prevent government attacks,” Bathija said.
Should you buy the dip?
Cryptocurrency market experts are usually of the opinion to buy the dip as they remain hopeful that the market will recover.
“Investors should take advantage of this dip and look for opportunities in the market. It is a good time to invest. This is not the first time that the crypto market has suffered a huge loss and has subsequently recovered and become even stronger than before. The same will happen this time,” said Kumar Gaurav, founder and CEO of Cashaa.
“In light of the high bearish sentiment in the market coupled with high volatility, retail investors are either trying to minimize losses or try to buy the dip. Choosing the right exchange to store your assets can make all the difference during volatility. While buying and holding cryptocurrencies until the price goes up is a great investment strategy, you can also earn passive income from your crypto until you decide to sell it,” Bathija advised.
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