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The decline in the crypto prices is related to the decision of the Federal Reserve to withdraw stimulus funds from the market.
At the start of the year, predictions put Bitcoin on course to $100k raising excitement among many investors. However, after the worst start possible to the year, the coin has now dropped about 16.7% in the past week and looks set for a more dramatic loss. From a peak price of $68,000 in November, Bitcoin price is now under $36,000.
In a similar vein, Ether dived about 20% and is now trading at $2500 while several meme coins have suffered a similar fate. The general decline has resulted in a loss of over $1 trillion from the aggregate crypto market.
Hawkish Federal Reserve Responsible for Value Loss
The decline in the market price of these currencies is due in large part to the decision of the Federal Reserve to withdraw stimulus funds from the market. Fed Chairman Jerome Powell had last week stated the Federal Reserve’s aggressive policy moves to combat rising inflation. The fed announced its decision to accelerate the buying back of bonds and to increase interest rates.
What is interesting is that cryptocurrency prices have reacted in the same way as equities. This is especially important because advocates of Bitcoin push it as a way to hedge against inflation. Chief Executive and co-founder of FRNT Financial, Stephane Ouellette, stated, “Crypto is reacting to the same kind of dynamics that are weighing on risk-assets globally.”
On his part, Oanda senior market analyst, Edward Moya, was disappointed to see the negative reaction of Bitcoin to the reversal of treasury yields.
Price Crash May Not Be Over
Already, Bitcoin is back to what it was by this time in 2021. However, some experts suggest the retracing may not be over.
With an increase in regulatory crackdown on cryptocurrencies, there are expectations the price crash may continue. Most recently, Russia proposed a ban on the use and mining of cryptocurrency within the country. The proposal stated that the digital currency constituted a risk t the country’s financial stability and monetary policy sovereignty.”