The cryptocurrency market has been under pressure recently, with Bitcoin and Ethereum down significantly from their all-time highs. Several macro headwinds are weighing on the market, including rising interest rates, inflation, and the ongoing war in Ukraine. Let us learn the impact of each of them in this blog.
Factors Behind the Bearish Trend in Crypto Market
We have already mentioned the factors responsible for the bearish trend in the crypto market; let us evaluate them in detail:
Rising Interest Rates
The Federal Reserve is raising interest rates in an effort to combat inflation. This is having a negative impact on risk assets, such as cryptocurrencies. As interest rates rise, the opportunity cost of holding cryptocurrencies increases. This means that investors are more likely to sell their cryptocurrencies and invest in assets that offer higher yields, such as bonds.
Inflation is also a major concern for the cryptocurrency market. Inflation is eating into the purchasing power of investors, making them less likely to invest in risky assets like cryptocurrencies. Additionally, inflation is making it more expensive to mine cryptocurrencies, which could decrease the supply of cryptocurrencies.
War in Ukraine
The war in Ukraine is also a major concern for the cryptocurrency market. The war has caused economic uncertainty and volatility, making investors more risk-averse. Additionally, the war has disrupted supply chains, which could make it more difficult for miners to obtain the hardware and energy they need to mine cryptocurrencies.
Despite the current challenges, some analysts remain bullish on the long-term prospects of the cryptocurrency market. They argue that the underlying technology is still sound and the market is undergoing a healthy correction. Additionally, they point to institutional investors’ growing adoption of cryptocurrencies as a sign of confidence in the market.
Crypto Market in the Second Half of 2023
Beginning of 2023, Bitcoin, the biggest digital currency in the world, fell below $20,000. Deepening concerns in the U.S. banking system, the falling dollar index, and slow inflation have aided the recovery of Bitcoin and other digital currencies and reached resistance levels. The recent financial crisis in the U.S. has gotten people interested in alternative investments to the traditional financial system.
As an investor, you must know that the future of Bitcoin is still unknown. However, you must keep a hawk’s eye on every move. Additionally, if you want to build positions in your investments, know that BTC is still selling at 50% of its price from an all-time high. Something to consider. The macroeconomic conditions discussed above have led to this volatility.
Experts seem bullish on Bitcoin due to the BTC Halving event in 2024. Meaning the value of Bitcoin will be half. Every four years, an event is addressed as “halving”, wherein the benefits of mining BTC are cut in half. In the past, halving has been a good sign for Bitcoin to gain pace as it reduces the number of coins in circulation.
The macro headwinds facing the cryptocurrency market are a cause for concern. However, some analysts remain bullish on the long-term prospects of the market. The outlook for the cryptocurrency market will depend on how the macro headwinds play out. The cryptocurrency market could face further challenges if inflation and interest rates continue to rise. However, if inflation and interest rates start to fall, the cryptocurrency market could rebound.