Cryptocurrencies are volatile, with a history of "boom and bust" cycles that have many people wondering whether a Crypto crash is a foregone conclusion. In 2021, Bitcoin saw a wild ride, reaching an all-time high of about $69,000 on November 10, 2021. However, it has been on a downward trajectory since the beginning of 2022 and currently is worth less than $40,000.
Some claim tight Monetary Policy is the reason
Concerns about stricter monetary policy have driven down the value of cryptocurrencies. Even the buzz surrounding last week's Crypto 2022 conference in Miami was unable to reverse the price trend.
"Fed tightening by 0.5 percentage point steps at forthcoming meetings and a $95 billion per month balance sheet run-off, sending crypto markets plummeting down." "Teong Hng, CEO of Hong Kong-based Satori Research, was reported by Bloomberg.
Crypto's propensity to move in lockstep with assets such as US tech stocks makes the drop less surprising following a difficult week for US markets. The correlation with the Nasdaq 100 Index is presently at all-time levels.
Investors are dumping cryptocurrencies ahead of the US tax deadline in mid-April, according to David Duong, head of IRCG, who sees a repeat of trends that occurred in 2021. "Last year, market participants sold digital assets to cover tax-related obligations." "In a recent letter, he said He also said that when the Fed raises interest rates, investors are turning away from riskier assets.
Will Crypto Recover?
In investing, there are no guarantees. Crypto may fall just as swiftly as it might rise. There are many issues with cryptocurrencies:
Calls for greater regulation across the globe
Regulation seems to be a threat to the decentralization of Crypto, which is impacting price.
Crackdowns in countries like China
Its price is based solely on speculation
Crypto fans point to positive qualities such as:
Transformative technology which could revolutionize industries
Transactions are more confidential
Crypto has been touted as an alternative to gold, meaning it could prove itself as a hedge against inflation
A safe store of value
Easier global trade
Cheaper transactions by cutting out the "middleman."
Given its volatile nature, it is feasible that Crypto may regain momentum at some point in the future. However, no one has a crystal ball!