“Fundamentally, investor sentiment surrounding cryptocurrencies has changed in the wake of the downturn. As inflation rates have increased, investors have become altogether warier of high-risk investments, and the volatility that surrounds the crypto market makes it an ever-present risk to portfolios” — Paul Ebeling
Bitcoin’s inability to shake off traditional markets
Another Key cause behind the crypto market’s struggles is the landscape’s inability to differentiate itself from traditional stock markets. This can be a source of frustration for crypto enthusiasts who believe that the blockchain framework behind coins means that crypto assets should be decentralized and thus immune to global market movements.
Recent years have shown that cryptocurrencies are intrinsically linked to the stock market. When the Covid-19 pandemic caused global markets to crash in March 2020, Bitcoin also fell 57% amid the sell-offs. Likewise, when stocks recovered and underwent a significant rally, so too did Bitcoin.
Now, as the optimism surrounding the stock market’s recovery wears off, so too has the outlook for crypto. As the Federal Reserve and other central banks have opted to raise interest rates in the wake of inflation, investors have begun to shy away from crypto –opting to avoid the famously volatile ecosystem in matters of wealth preservation.
Bitcoin’s most recent downturn comes in the wake of the Dow and Nasdaq’s worst daily drops since the 2020 crash. Compounding inflation issues has been the unsettling news of Russia’s invasion of Ukraine, which has resulted in greater inflation issues, supply chain problems and spiraling oil prices.
This has been compounded by the re-emergence of Covid-19 in China, which has prompted financial anxieties in Asia. While crypto advocates believe that Bitcoin will ultimately decouple from the stock market in the future, there’s little doubting that the 2 are intrinsically linked today.
There is no reason to suggest that bitcoin will be unable to return to its previous highs in the future. The cryptocurrency market’s continued adoption by institutions suggests that the future remains bright for the crypto market.
Have a prosperous week, Keep the Faith!