Title: Some Possible Reasons behind the Current Crypto Market Crash
May 09, 2022 08:30AM ET
The markets for cryptocurrencies continued their downward spiral over the weekend, reaching their lowest level this year. The capitalisation of cryptocurrencies fell to its lowest level in ten months, with another $130 billion leaving the market over the weekend, bringing the market capitalisation down to $1.62 trillion.
One reason for this could be the fact that the US Federal Reserve raised interest rates by half a percentage point last week, to which Wall Street responded with a drop in shares. The crypto markets followed suit and lost about 10%, or $200 billion, in the past seven days.
Senior market analyst at OANDA, Edward Moya, explains that it is well known that crypto markets correlate with indices such as the Nasdaq. He substantiated this claim when he noted that the technology-focused index has fallen 21% this year, while Bitcoin has also fallen 22%.
Another possible reason for the recent price declines could be a drop in institutional interest. The year 2021 was very positive for institutional investments, but this trend has not continued in 2022.
Names such as Tesla (NASDAQ: TSLA) and MicroStrategy entered the crypto market in 2021, which contributed to the momentum and buying pressure. 2022, on the other hand, was much more subdued, with institutional outflows over the past four weeks.
Investors also appear to be reacting to events in the broader economy, as confidence in traditional assets appears to have risen significantly following the shock of the COVID-19 pandemic.
Finally, crypto markets are cyclical, meaning that anything that goes up will also go down. There have already been four distinct bull markets since Bitcoin's inception, but if history repeats itself, the market could remain bearish for the rest of the year until 2023.