The answer is complex. While Bitcoin and other cryptocurrencies are experiencing significant drops, they are not necessarily Cryptocurrency Crashing. Volatility and inflationary pressures are two of the main factors. Here is a quick breakdown of the three main factors. If you’re considering purchasing cryptocurrency, read this article. You’ll learn more about what’s driving the price drop and why stablecoins are a better bet than Bitcoin.
Inflation
Bitcoin is the largest cryptocurrency by market capitalization, but why is it crashing? The price of Bitcoin climbed to a high late last year, but has since fallen sharply, largely due to fear of inflation and tighter monetary policies. As Bitcoin’s price collapsed, a stablecoin, TerraUSD, was created that was supposed to keep its value in check, pegged to the U.S. dollar. TerraUSD’s price plummeted as a result.
The broader stock markets have plunged, so the drop in cryptocurrency prices is especially sharp for early investors. But the fall in price of cryptocurrencies is only part of a broader pullback from risky assets, spurred by rising interest rates, inflation, and the economic uncertainty caused by Russia’s invasion of Ukraine. Also hurting stock prices are the effects of a global pandemic, with inflation reaching 40-year highs in the UK and eight percent in the US. These economic factors have reduced the risk appetite of big investors, leading to the crash.
Volatility
The stock market knows why bitcoin is crashing, but what about the world’s most popular digital currency? Bitcoin has already dropped by more than 50% eight times since it launched in 2009. The last time it fell that far was in July. If you think this is a rare occurrence, think again. The stock market doesn’t suffer from volatility and has plenty of diversification. But the broader crypto market is experiencing another wave of selling.
Experts warn investors not to sink a large portion of their portfolio into crypto, as it can interfere with other financial priorities. Personal finance expert Humphrey Yang says that it’s okay to take a small loss at a time. As a general rule, he recommends using a “buy-and-hold” strategy. A big dip is no cause for concern. And you should avoid checking your investments too often during the craziest times in the market.
Stablecoins
Why is the largest cryptocurrency crashing? Several factors are to blame. Among them are global macroeconomic conditions and stock market upheavals. Some of the pain is self-inflicted, as with the collapse of terra luna in May, which lost 99 percent of its value and decimated $42 billion in investor funds. The currency was based on economic incentives and code, and economists pointed out that there was no demand for it. People who cashed out destroyed it.
Although there is no single cause for the crypto crash, experts point to the climate as a factor. Rising inflation has exacerbated the cost of living crisis, causing prices to increase. In the UK, inflation hit a 40-year high in May. In the US, inflation is at 8.6%. This means big investors are taking less risk. This may be the main reason why the cryptocurrency market is falling. If you believe that the global economy is at risk, the biggest cryptocurrency in the world is likely to fall, too.
Inflationary pressures on other cryptocurrencies
Inflation is a major concern for investors of Bitcoin and other cryptocurrencies. As prices increase, the purchasing power of money decreases. However, this only happens if incomes increase at a faster rate than price increases. If incomes are growing faster than price increases, people are becoming wealthier. Therefore, cryptocurrencies may not be subject to the same inflationary pressures as traditional currencies. Although there is no definitive answer to this question, there are several things to consider.
Inflationary pressures can lead to a price crash in cryptocurrencies. While the U.S. inflation rate may have decelerated in the past month, this will not relieve downward pressure on prices. Therefore, bitcoin traders will be closely monitoring the inflation report. Today, US markets will be closed for the Juneteenth holiday. Investors will be monitoring UK retail inflation data for May and the US Manufacturing and Services PMI for this month. Oil prices and bond yields will also be closely monitored.
