Every day, the price of cryptocurrencies drops to new lows. The price of Bitcoin, the biggest cryptocurrency in the world, has dropped to a record low of $17,800. It has decreased by around 60% so far this year. Ethereum, the second-largest cryptocurrency, dropped around 35% to $897 in the meantime. Every significant cryptocurrency trades with a drawback. Long-term investors were also impacted by this. Here are the 5 factors affecting the cryptocurrency market are listed below.
Luna-Terra crash
Following the Luna-Terra crash, everything began. Not only its investors, but the entire crypto community, faced severe repercussions from the tragedy. Many investors in Terra Coin lost their entire life savings. Before the crisis, it had a market valuation of more than $18 billion and was a stable coin.
TerraForm Labs, the firm that created Terra, intended to sell off all of its bitcoin holdings in order to restore Luna Terra to $1 after it had lost 99.9% of its value, but they were unable to do so. As a result, the market for cryptocurrencies lost more than $40 billion.
Equity market heat
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The equity market and the cryptocurrency market are interconnected. If the stock market is falling, the cryptocurrency market will likely follow behind. Cryptocurrency prices are impacted by numerous factors that also affect the stock market. Investopedia data indicates that between the end of 2021 and the middle of 2022, the price of cryptocurrencies fluctuated similarly to equities prices.
Rate hikes by Fed
In order to lower inflation, the US Federal Reserve has decided to increase interest rates. The Fed will employ an aggressive approach to increase the cost of debt, reduce expenditure, and control record-high inflation. In general, a sharp increase in interest rates is seen as a pessimistic sign. Both the stock market and the cryptocurrency market experienced a sharp decline after this news.
Celsius Network closure
Decentralized financial system Celsius Network, in light of the extreme market conditions, declared on Sunday that it is stopping all cryptocurrency transactions. Following the shutdown, there was a significant sell-off that sent aoll cryptocurrencies lower. According to the company’s website, as of May 17, it had assets worth $11.8 billion and had processed $8.2 billion in loans, per a Reuters article. In August last year, it has assets of more than $ 20 billion.
Regulatory Challenges
Governments from around the world have been keeping an eye on the cryptocurrency market as they work to regulate it. The crypto law has not yet been introduced in India. The proposed law aims to outlaw all privately held cryptocurrencies in India. Additionally, the nation levied a 30% tax on cryptocurrency investors and a 1% TDS on all intra-crypto trades. India neither regulates cryptocurrency nor plans to legalise it at this time.