The cryptocurrency market witnessed its worst moments this week, with Bitcoin prices falling to two years low at $20,072. The fall in Bitcoin had significantly affected altcoins also, dragging their prices down to a new all-time-low in two years. Ethereum fell to a new low at $1,012, Binance (BNB) had created a new low at $198, Dogecoin had created a new low at $0.04978, Uniswap had seen a new low at $3.35, LINK had made a new low at $5.30 and so on.
In light of the deep fall witnessed yesterday during the Asian session, analysts had described the year 2022 as one of the worst moments in Crypto history, with Bitcoin staying bearish for six consecutive months marking the first and second quarters of the year.
At the moment, the prices of Bitcoin and other cryptocurrencies are rising again after the momentary second fall following the outcome of the Fed's session yesterday. Many experts consider the current bullishness as a false breakout that traps the bulls. This is because the news of a Hawkish interest rate hike by 75 basis points is expected to crash the price of Bitcoin below the current level.
What are the primary reasons for the crash in Bitcoin?
Three significant reasons explain the cause of the heavy fall seen in the crypto market this week. We have discussed these causes below:
Interest rate hike: The hawkish stance of the Fed towards a progressive interest rate hike for the dollar has so much affected the performance of cryptocurrencies. Often, hiking the interest rate causes investors to withdraw from risky assets and invest in the US 10-year Treasury yield and other less risky investments. Fears of an aggressive interest rate hike during the Fed's session yesterday caused more investors to sell off their crypto assets ahead of time. Thus, many investors forecasted the possibility of a more aggressive interest rate hike of 75 basis points before this session. Of course, it came out as expected yesterday.
Increasing Dollar strength: Virtually all crypto assets have been pegged to the US dollar. Hence, the crypto market is often so much affected by increasing dollar strength. The dollar index attained a new all-time high at 105.6 during the Asian session yesterday. This had pushed down the prices of every other asset pegged to their lowest points in years.
It is important to note that the dollar index and the prices of cryptocurrencies move in opposite directions. Therefore, every crypto trader must pay great attention to the dollar index while deciding whether to go long or short on Bitcoin.
Reduction in Demand: With the progressive hiking of the interest rate in the quest to curb inflation, investors are bound to lose appetite for buying cryptocurrency. The new target has become the US treasury yields and bonds. Unsurprisingly, the US 10-year treasury yield rose to its highest today at 3.475%. This is also its highest point in eleven years. Thus, this is a clear testimony that the current month's demand for risky assets and crypto has drastically reduced.
Will the crypto market rise again?
The outcome of the Fed's session yesterday, which ended with a 75 basis points interest rate hike for the US dollar, is a negative sign for cryptocurrency. Despite the current rise, it is essential to point out that the market has not yet fully reflected the recent interest rate hike. Many analysts have described the current rise as a false breakout that traps the bulls.