This year, cryptocurrency prices are plummeting. Bitcoin has lost around 37% of its value in 2022, and several alt-coins have lost significantly more. The year, as seen, geopolitical issues crush high-risk assets, including cryptocurrency. As interest rates rise, growth looks less attractive.
Let’s dig deeper and understand why the year 2022 has not been in favor of cryptocurrencies.
Increase in interest rates
The main cause of the fall in crypto prices this year is the increase in interest rates. The downward movement in cryptocurrency prices is closely tied to this year’s interest rate hike.
In early 2022, the Federal Reserve began raising interest rates. During the same period, the price of Bitcoin was also falling. These are the same trends that were seen in 2018 when the Fed raised interest rates and crypto fell.
Fall in investor sentiment
A drop in investor sentiment is linked to the first reason. Traders are losing faith in cryptocurrency for various reasons, including rising interest rates.
The reason is that the market it enables, NFTs, is sinking. NFTs are “non-fungible tokens” that serve as a gateway to other digital assets. People acquired them last year with the intention of reselling them to someone else for profit. People quickly refused to buy them, which lowered attitudes not only against NFTs but also towards the Ethereum project as a whole.
Global Crypto Trust Seeing a glitch
It’s just not one or two cryptocurrencies, but the whole crypto market is losing investor confidence. Stablecoins, or cryptocurrencies pegged to the US dollar, are among the mainstays of cryptocurrency. Although their value is stable, these coins are an essential part of the idea that crypto will be used as currency.
However, Terra (LUNA), a stablecoin, lost value last month once it lost its peg to the dollar. With Luna no longer supporting Terra’s price, the value of both tokens plummeted. Some investors have lost all their retirement money.
So what do you think? Will cryptocurrencies be able to gain stability and act like money? Let us know