The crypto market has suffered a loss of over $500 billion in combined market capitalisation earlier on Friday. The loss in the market led to over $700 million in liquidation as top crypto assets suffered a massive blow. Bitcoin underwent a downfall below the critical support level of $40 thousand while Ether suffered a loss of $3 thousand support.
Owing to the debate whether the crypto market is entering into a bear phase, many theories came across throughout the web to understand the crash. Here are some of the theories that experts believe as the reasons that fuelled the crypto market crash.
U.S. Fed’s inflation measures:
The consumer inflation in the United States has reached a record high level and the upcoming Federal Open Market Committee (FOMC) will be holding a meeting on January 25-26 where they are expected to announce new interest rates. Reportedly, the Fed is expected to raise interest rates three times this year with hikes going from 0.25% to reach as much as 1% by the end of the year.
According to many market experts, the growing concern around inflation along with the rise in Omicron cases has resulted in the sell-off on Wall Street, which eventually led to the current crash of the crypto market.
One of the Reddit theories suggests that crypto was created to hide asset inflation it leading to another “pipeline” for the U.S. dollar to pass through to inflate a different asset. The user Juicyjuicejuic stated, “Crypto creates the perfect trading vehicle for a short time, before becoming the scapegoat for whatever crash is coming.”
The user also stated that the volatility in the crypto market is the reason behind, “why bonds and stocks are crashing because everybody gambled on crypto and took money out of other assets to do so!”
Bitcoin market’s growing correlation with Wall Street
Market experts suggest that the growing correlation of Bitcoin with the equity market has led to the crash of the crypto market. Owing to the ETFs and institutional investors, Bitcoin has become interrelated with the equity markets. The cryptocurrency market is depending on the flow of Wall Street.
Russian central bank crypto blanket ban proposal
The Central Bank of Russia has announced a blanket ban on cryptocurrency mining and trading. According to the Cointelegraph, the Russian central bank compared Bitcoin to a Pyramid scheme after which it demanded an immediate ban on its use domestically. The Central Bank claimed that crypto could pose threat to the financial sovereignty of the nation.
The first major crash of 2022 has marketed a selling spree in the crypto market; however, the professional traders continue to claim a crash of up to 30% is not dangerous in a bull market.
