Panic stations! 3 reasons why Bitcoin and crypto prices are plummeting

The prices of Bitcoin and many other crypto assets have been plummeting recently. Here are three reasons why this might be happening.

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Once again there’s blood on the streets in the world of crypto. The price of Bitcoin and most other assets in the cryptocurrency market have been tanking in value.

Here’s a look at what’s going on with digital assets right now and three reasons why prices have been heading on a downwards trajectory.

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[top_pitch]

What’s happening to the price of Bitcoin?

As the world’s largest and most infamous cryptocurrency, you can often get an idea about what the crypto market is doing just by looking at the price of Bitcoin (BTC).

After hitting highs of around $68,000 (£50,000) during November 2021, Bitcoin has been tumbling ever since. Recently, the price has been declining at a rapid pace. So much so that at the time of writing, the value is down to around $33,500 (£25,000).

So, in just a few months, the biggest cryptocurrency in the world has lost roughly half its value. But this is just par for the course in the digital asset space and something we also saw happen last summer.

It’s not just Bitcoin that’s bleeding; the rest of the market is also suffering. And in most cases, coins and tokens are seeing much more severe drops, with hundreds of billions being swept away from the total market cap.

[middle_pitch]

Why are Bitcoin and other crypto prices dropping?

This is a complicated question, and there’s more than one factor at play when the market tanks like this. Right now, these are the three main culprits that I suspect are causing pain in the market.

1. Russia’s crypto crackdown

Russia is the latest country to try and squash the Bitcoin mining industry within its borders.

This is something we saw happen last year in China, and it had a similarly devastating effect on the market. However, in this case, it’s not an actual ban – yet. It’s just a proposal to ban the use and mining of cryptocurrencies.

Nevertheless, this news doesn’t bode well for the likes of Bitcoin. The cryptocurrency will struggle to fulfil its promise of being a globally distributed ledger if it can’t be accessed or used in some of the world’s biggest and most influential countries.

2. Inflation and wider tech sell-off

To combat rising inflation figures, the US Federal Reserve has already announced plans for multiple interest rate hikes this year. This is something the UK is already in the process of doing to combat inflation.

The reaction to this decision has led to a wider tech sell-off amongst investors. Many are rotating money out of riskier assets that promise growth. Instead, they are looking towards value investing, which can involve buying shares in firms that won’t be as harshly affected by the powers of inflation.

Under this reasoning, cryptocurrency will likely be the asset most investors’ sell first. This is simply because it’s the riskiest and most speculative part of most portfolios.

3. The end of a four-year crypto cycle

Since the inception of Bitcoin (and the other cryptos that followed), the market has tended to eerily follow a four-year cycle.

During each cycle, usually after each Bitcoin ‘halving’, the value of cryptocurrencies surges and everyone says ‘this time it’s different!’ But then, sure enough, the cycle ends and these assets move into catastrophic bear markets that last years.

It may be the case that in anticipation of this cycle ending, many investors have decided to sell their crypto assets. And so, what we’re seeing is a self-fulfilling prophecy. If everyone thinks values will drop because it’s the end of the cycle, people sell in droves. This sets off a chain reaction which then leads into the next multi-year bear market.

Investing in Cryptocurrency is extremely high risk and complex. The Motley Fool has provided this article for the sole purpose of education and not to help you decide whether or not to invest in Cryptocurrency. Should you decide to invest in Cryptocurrency or in any other investment, you should always obtain appropriate financial advice and only invest what you can afford to lose.

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