3 reasons why cryptos could be crashing

Highlights

• The Fed is expected to raise interest rates more sharply than previously expected by analysts
• Russia, the IMF has recently noted, may use crypto mining as a way to avoid Western sanctions
• CoinMarketCap now tracks more than 19,000 cryptos, a sign of abundance in cryptoverse

Though many are looking for reasons behind the fall in the value of cryptoassets this year, it might not be possible to discover what exactly is behind it.

As of writing, a yet-another bearish wave had gripped cryptoverse, with major assets like BTC, SHIB, and SOL trading in the red.

Hereunder are three probable reasons why the crypto market is down.

1. Interest rates and the Fed

The Fed chair has recently commented that a 50 bps hike might be considered during the next meeting. This, some experts argue, has upset investors globally.

Though the Fed has already begun with its rate hikes, a steep rise of 50 bps may impact corporate revenues. This may have led to investors tweaking their bets on riskier assets like shares and also cryptocurrencies.

On Friday, March 22, the closely-tracked S&P 500 Index lost over 121 points by the time of closing. It resulted in the index closing below 4,300.

Cryptos trade at all times and the 24-hour price movement in most cryptos was negative as of writing. The same sentiment may have hit crypto traders as well.

Also read: What's in Canada Budget 2022 for cryptocurrency enthusiasts?

2. War in Ukraine

While many may argue that Ukraine’s seeking of donations in cryptoassets like BTC was a very positive development for cryptoverse, fears that Russia may use these assets to dodge sanctions are also true.

Recently, the IMF has commented that countries including Iran and Russia may look at redirecting their resources toward crypto mining.

Both the countries are energy-rich, which may help them use it for the purpose of mining bitcoin. Separately, the Ukraine war seems far from over. It has hit the international supply chain, with inflation becoming a threat in the West due to the embargo on imports from Russia.

Also read: Bitcoin bond and Bividend: 2 new extensions of Bitcoin?

3. Abundance of tokens

It might be possible that the so-called HODL (hold on for dear life) factor has somewhat lost its sheen. BTC, DOGE, ADA, and most other top assets have a negative year-to-date (YTD).

Besides, there is abundance in the cryptoverse with respect to new native tokens. CoinMarketCap now tracks more than 19,000 cryptoassets. Some assets might rise even when major ones like BTC are down.

For example, Kyber Network Crypto v2 (KNC) token had gained over 200 per cent on a YTD basis as of writing. Another new crypto, ApeCoin became a top 50 asset soon after its launch.

Also read: APE and WAVES: 2 cryptos that made news in Q1 2022

It is possible that some crypto enthusiasts may now be looking at the real utility of any token. Since the HODL phenomenon has, so far in 2022, not resulted in a gain for BTC backers, new investors might be exercising caution.

Bottom line

The probable factors behind the crypto crash are inflation and interest rate hike fears, the war in Ukraine, and abundance in the crypto verse.

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