Cryptomarkets are know for their volatiliy and the latest development is the best illustration for what it means in practice. On January 22, Bitcoin fell to $34,500 before rebounding slightly to weekend’s $36,300. The optimism has been short-lived, however, as the leading cryptocurrency has now dropped to $33,707.
Why are cryptomarkets falling?
As with every major fall, there are several factors that lead to the latest drop of the markets. Besides the FUD of the weak hands (as explained in our previous article), there are now these major factors in game:
Correlation with major stock markets
As top cryptocurrencies were bought by large institutions, it increased their correlation with the major stock markets. Now when stock markets are falling, so are major cryptocurrencies, lead by Bitcoin and Ethereum. Due to the whole cryptomarket being very tightly related, it is taking down most other altcoins, because the FUD effect is taking place.
Higher interest rates coming
And major stock markets are falling because the cheap money imput seems to be coming to an end soon with higher interest rates and lower quantitative easing measures from major banks. The reason is that higher interest rates will make it harder for companies to get access to credit, and it will also mean that there won’t be as much cheap money that speculators have been looking for a place to invest, thereby driving up the prices of both high-risk assets and cryptocurencies.
Geopololitical situation in Russia and regulations
European stock markets are also very alert due to the geopolitical situation between Russia and Ukraine. The tensions in this area also lead to higher prices of natural gas, thus adding inflational pressures to the already high inflation rates.
Furthermore the recent news about Central Russian bank planning a blanket ban on all cryptocurrencies did not help the situation much. Mining, trading or possession of cryptocurrencies would be banned if such a law actually comes into effect in the country.
Are we entering a bear market?
It may seem that the markets are now entering a bear zone. This had happened in the brief history of Bitcoin several times already and some of the drops were devastating. But every time the markets bounced back and there came a bull run, so it is possible to state that first, this situation is not unusual, and second, that a large surge followed after these periods of down fall.
Conclusion
However you might have noticed that not all cryptocurrencies are falling. There are some digital currencies, which are not correlated to the asset markets or Bitcoin due to the fact that there are no large institutions among the holders and also due to the fact that it is used within its independent ecosystem. Among the few exceptions is for example PlatonCoin, which can serve as a hedge against these unexpected market movements. For more information see the web page of the ecosystem.
Disclaimer: This is not an offer to enter into a contract. Cryptocurrency trading is a high-risk business and only you bear the risk and responsibility for your own decisions. Do not engage in trading unless you have done your own research and are fully aware of the risks.