Cryptocurrency prices continue to fall, and there seems to be no bottom in sight – here are three reasons why the crypto market is down.
The price is struggling to maintain a marginal gain of 0.23% on Oct 20, but overall crypto prices are falling across the board and the broader market remains in a strong downtrend. Bitcoin price continues below $20,000, a level that many investors believe to be a psychologically significant support and resistance level.
Concerns about the US Federal Reserve’s “lack of progress” in combating high inflation is the likely reason for the prolonged malaise seen in crypto prices. On October 20, Philadelphia Fed President Patrick Harker suggested that higher interest rates were not effective in fighting inflation, concluding that “we’re going to keep raising rates for some time.”
Many analysts believe that the Fed’s aggressive rate hikes represent another policy mistake – the first was waiting too long to address rising inflation – and that 2023 will see the start of a deep recession.
The consumer price index (CPI) for September showed that consumer prices rose 0.4%. Compared to a year ago, consumer prices are now 8.2% higher, according to data from the Bureau of Labor Statistics.
In addition to a 0.4% increase in consumer prices, the core CPI increased 0.6% monthly since September and 6.6% in the last 12 months, when food and energy prices are eliminated. .
In short, rising inflation is the last thing the Federal Reserve wants to see. The Fed’s rate hikes are meant to cool the economy and curb high inflation, so the higher-than-expected report on October 13 will likely translate into another round of 0.75 basis point hikes in the coming months. .
Due to the high correlation between cryptocurrencies and stock markets, Bitcoin price action tends to follow the direction of the S&P 500 and the Dow, and a series of economic events occurring in mid-October may push Bitcoin prices further. the cryptocurrencies.
The following dates highlight key economic events that have a history of influencing investor sentiment in the crypto market:
October 17 – Month End: Third Quarter Earnings
October 28: Personal Consumption Expenditures (PCE) Price Index
This week, several major US companies are reporting quarterly earnings and the mix of results is causing volatility in the stock markets. Shares of Tesla (TSLA) fell 6.2% after missing its third-quarter earnings target, with the electric vehicle maker citing production and delivery challenges.
In addition to these future events, the strength of the US dollar and what appears to be a serious escalation in the Ukraine-Russia conflict continue to affect all markets.
Let’s take a deeper look at the three reasons why cryptocurrency prices will continue to fall in 2022.
The Federal Reserve raised interest rates
Rising interest rates increase the cost of borrowing for consumers and businesses. This has the effect of increasing operating costs, the cost of goods and services, production costs, wages, and ultimately the cost of just about everything.
High and uncontrollable inflation is the main reason the US Federal Reserve raises interest rates. And since the interest rate hikes began in March 2022, Bitcoin and the crypto market in general have corrected.
When it comes to monetary policy or metrics that measure the strength of the economy, risky assets tend to point or move more than stocks. In 2021, the Fed began signaling its plans to eventually raise interest rates, and the data shows that the price of Bitcoin will correct itself drastically until December 2021. In a way, Bitcoin and Ethereum were the canaries in the coal mine. , which signaled what was to come. for stock markets.
If inflation starts to fade, the health of the economy improves, or the Federal Reserve starts signaling a shift in its current monetary policy, risky assets like Bitcoin and altcoins could once again be the “canaries in the coal mine.” as reflected by Risk. -On investor sentiment.
The Persistent Threat of Regulation
The cryptocurrency industry and regulations have a long history of not getting along due to various misunderstandings or distrust of the actual use case of the assets.