Business

Crypto Price Crash to 1-Month Low; Here’s why

Published

3 years ago

January 6, 2022

Bitcoin slid sharply after the Federal Reserve released minutes of its December meeting, with policy makers indicating growing unease over inflation and the potential for interest rates to start rising as soon as this March..

But investors failed to notice this big security improvement in the world’s oldest blockchain network and thus they continued to sell Bitcoin at every rise. At 8.14 am, BTC was down 6.39 per cent at $43,390.98

Fed officials indicated that inflation readings and tight labor conditions could warrant an interest-rate increase “sooner or at a faster pace than participants had earlier anticipated.” The minutes, from the Dec. 14-15 meeting of the bank’s monetary-policy committee, also indicated that the Fed may start to pare back its $8.8 trillion balance sheet “relatively soon” after raising its benchmark federal-funds rate.

The selloff in Bitcoin coincided with a sharp downturn in equities, with tech taking it particularly hard. The Nasdaq Composite Index was off 2.7% to 15,190, faring worse than the broader S&P 500, which was down 1.4% to 4,725 shortly after 3 p.m.

Rival Ethereum (ETH), which is almost close to the deadline for its proposed change in consensus mechanism from proof-of-work to proof-of-stake, crashed by 7.70 per cent at $3,513.56. Its volume to market cap ratio stands at 0.04652. The proof-of-stake mechanism consumes less energy but is less safe from the proof-of-work mechanism.

Cardano (ADA), which was recently chosen by Samsung for its environmental sustainability initiative of planting 2 million mangrove trees by Q1 2022 in Madagascar, crashed by 7.41 per cent to $1.23. Algorand (ALGO), which is known as the Ethereum killer, also crashed by 11.55 per cent at $1.53; its market cap now stands at $9,904,016,699.

Among other major coins, Binance Coin (BNB) was down by 8.99 per cent at $468.67, while Solana (SOL) was down by 9.96 per cent at $152.22.

Today’s top gainer was NinjaFloki (NJF), which was up by 1227.28 per cent at $0.00004377. The top loser was Beyond Protocol (BP), which fell by 84.88 per cent to $1.

Meme Coins And DeFi

Dogecoin (DOGE) was trading with a loss of 7.78 per cent at $0.1572. Its volume to market cap ratio stands at 0.0507. Rival Shiba Inu was down by 8.53 per cent at $0.00002982. ELON is trading with a loss of 10.36 per cent at $0.000001353, Floki Inu crashed by 15.13 per cent at $0.00008713, while Samoyed Coin (SAMO) is trading with a loss of 6.45 per cent at $0.03564.

AAVE ARC

In the DeFi segment, YFI (yearn.finance) was trading with a loss of 13.88 per cent at $32,010.99, Terra (LUNA) was down by 10.31 per cent at $76.43, Avalanche (AVAX) is down by 10.53 per cent at $94.49, Uniswap (UNI) is currently down by 9.72 per cent at $16.81. Meanwhile, Aave (AAVE) recently launched its DeFi lending platform Aave Arc for use by financial institutions that want to participate while complying with regulations in this segment (DeFi), reported theblockcrypto.com; it is currently trading with a loss of 11.78 per cent at $224.92.

The selloff in Bitcoin is another sign that it is acting more like a tech stock than an inflation-fighting store of value–or digital gold, as its proponents argue.

Bitcoin’s limited supply of 21 million coins means that it can’t be depreciated like fiat currencies that are vulnerable to inflation and loss of purchasing power, Bitcoin’s fans argue. But it has failed to hold up, at least in the short term, coming under pressure as the Fed and other central banks pare back on excess-liquidity measures and prime the markets for higher rates this year.

Other cryptos also appear to be performing more like emerging-tech bets than alternative assets, correlating with the performance of the Nasdaq in the near term.

Higher interest rates and tighter financing conditions are designed to prevent inflation from spiraling further. A side effect, though, is that they tend to hit speculative assets as investors opt for safer investments. Tech gets hit hard as investors rotate into value, energy, and other sectors that could do better in an inflationary climate.

Indeed, Bitcoin’s slide has coincided with the 10-year Treasury yield surging from 1.52% on December 31 to 1.71% currently.

If Bitcoin and other cryptos aim to be viewed as true alternative assets, they will need to start performing that way. So far, the markets are treating them like speculative, high-growth bets, vulnerable to the same financial conditions now pushing tech stocks into a tailspin.