If you are a trader, you may have noticed that Bitcoin is dropping at a slow consistent rate in the past week. Because cryptocurrencies are a volatile investment, such fluctuations have happened before and are expected. There have been extremely dramatic gains also where people always jump high at the interests they make. This is nothing new.
It is important to understand that Crypto’s price moves can be affected by interest rates, inflation, and other macroeconomic factors that can affect how confident people feel about investing their money in risky alternative assets. With interest rates rising, savings accounts become more attractive, and some people may be more comfortable putting their money where they can get predictable returns.
Another factor that can drive investor pessimism and may lead to crypto crashing is government actions by regulators around the world. As interest in cryptocurrency has grown, public officials are reckoning with what the technology might mean for monetary policy, security, and the environment.
For instance, on September 24, 2021, prices dropped after the Chinese government declared cryptocurrency transactions illegal, and said overseas exchanges are not allowed to do business with people in China.
The drawdowns in this past week come as the crypto market has been bracing for action from the U.S. government on multiple fronts. As monetary policymakers firm up their plans to slow inflation, the Biden administration is also reportedly set to unveil a broad strategy for how to handle digital assets.
Developments like these are a reminder that cryptocurrency remains a relatively new technology whose full effects on the worldwide economy are not yet clear. Crypto prices are volatile, and unanticipated events can send prices downward.
In an interview with Aljazeera, Josh Lim, Head of Derivatives at New York-based brokerage, Genesis Global Trading said “We’re seeing a slow-motion meltdown, partially because it’s mostly been long holders selling” instead of levered liquidations.”