For those who are not aware, cryptocurrency is a type of digital money that has been created with cryptography. There are approximately 8000 types of different cryptocurrencies across the globe now. They have been around for a while now but became extremely popular back when the price of a single Bitcoin touched the price of $20,000 in 2017.
The latest dip in the cryptocurrency market has left investors in shock and awe. The most popular and largest cryptocurrency by market value, Bitcoin, has declined massively and has come below $38,000. Ethereum, the second-largest cryptocurrency too, took a major hit and dropped below $2,800. Dogecoin, Shiba Inu, XRP, Polkadot, Tether, Litecoin Solana, Terra, Stellar, Binance Coin, etc., have also witnessed the same fate.
Overall, the global digital currency market slipped almost 5% and came below the 2 trillion mark for the first time in a while. What led to this massive fall? Let us look into the reasons attributed to the strong fall in the crypto market.
8 Key Reasons Reveal Why Crypto Market Is So Down in February 2022:
1. China Bans Crypto
China made headlines today by becoming the ninth country by banning cryptocurrency. According to PBOC (People’s Bank of China), the trading and mining of Crypto have escalated many illegal activities like money laundering, illegal fund-raising, pyramid scheme, different types of frauds, terrorism, and so on.
As a result, they banned all sorts of activities related to cryptocurrency. The global market of digital currency took this news hard, and the digital assets tanked massively.
2. Possible Hike in Fed Rate
Back in December 2021, the Federal Bank hinted at several rate hikes in 2022. They reasoned that this would help fight inflation and bring a balance between demand and supply. Any rate rise indicates that a more cautious investor might move their investment toward a safer asset rather than the more volatile and riskier cryptocurrency.
The change in public sentiment witnessed a lot of funds being withdrawn from an already volatile digital currency market that was dealing with massive selling pressure for five weeks straight.
3. Following the Traditional Stock Market
To be honest, not only the digital currency but the more traditional stock market also witnessed a severe correction in the second half of the week. While Nasdaq Composite tanked more than 7.6%, the world’s most-followed index S&P 500 nosedived 5.7%, recording a dip for three weeks straight.
This hints at one thing; the investors are pulling out their funds due to a financial crunch due to the recent Covid 19 third wave hit.
4. Heightened Scrutiny by Different Governments
While China has already banned trading in cryptocurrency, Russia is also planning to crack down on this volatile market. The Russian government had advised against the use and transaction of Crypto for years, fearing that they could easily be used to fund terrorism and other illegal activities.
Governments across the globe are worried that these unregulated and privately operated investments might lead to a huge financial loss for both retail and institutional investors. Since cryptocurrency is an intangible asset, it can lead to huge financial losses across the globe.
5. Churning of Funds in Different Assets
Some experts believe that the recent fall in Crypto indicates that investors are willing to look for different opportunities by booking profit in the digital assets. While cryptocurrency has lost significantly, some metaverse tokens such as Sin City (SIN) and Verasity (VRA) have witnessed sharp growth.
This could be seen as the investors’ sentiment of redistributing their assets across different opportunities like altcoins and NFTs.
6. The General Principle of Profit Booking
Well, this goes without saying that once an asset reaches a record high, investors will book profit, and the asset will dip. While Bitcoin reached a high of $69,000 in 2021, people started pulling out their money and maybe waiting to enter once the currency offered them a lower entry price. Though we will have to wait and see how far this is true.
7. Panic Selling
It has been concluded by some market experts that owing to various regulatory concerns from their respective governments; the more cautious and traditional investors might be pulling out their investments, fearing a ban in their countries, and losing the investment completely.
If Russia, one of the biggest adopters of cryptocurrency, can think about regulating or banning its trade, this might lead to a similar decision by other countries whose governments were already apprehensive about cryptocurrency.
8. Rise in Global Terrorism
Though there is no hard proof, however, Crypto has been long frowned upon for indirectly helping terrorism funding. The unregulated market can very easily be manipulated and used to fund terrorism without raising the alarm. The FATF (Financial Action Task Force) issued a report stating how cryptocurrency can pose a global threat.
According to the report, there are different ways to be abused by the wrong people or organizations to fund illegal activities and terrorism. They disclosed the pros and cons of the virtual currency by stating how this can help international payments in places where the population has zero or limited access to traditional banking services. Now, one can only imagine how it can impact illegal activities in remote and war-torn regions across the globe.
Honestly, the future of cryptocurrency is a little foggy at the moment. The Federal Bank’s hawkish sentiment, Russia’s next move, acceptance of NFTs and metaverse coins, and a few other factors will shape the future of the once-favorite digital cryptocurrencies.