Why are we dumping?
After a consistent uptrend in the past weeks, people woke up today to a massive dump in prices of cryptocurrencies such as Bitcoin, Ethereum, and others altcoins leaving many investors wondering what's causing this sudden drop. While there are several factors that could be contributing to this market correction, here are some of the main reasons why the crypto market is dumping.
People Taking Profits and Liquidation of late Longs
One of the most significant reasons why the cryptocurrency market is dumping is that many investors are taking profits. Over the past few months, the market has seen a considerable surge in prices, with Bitcoin going back above $30000 and Ethereum above $2000. This surge caused a lot of late investors to enter leveraged positions that are getting liquidated as markets have a sell-off. This double domino effect is the main cause behind this retracement.
Fear of Recession in the US
Another reason why the cryptocurrency market is dumping is the fear of a recession in the US. This was caused by the disruption left over by the covid pandemic and the highly inflationary environment that led the FED to raise interest rates. Many experts predict that the US economy is heading for a recession, which could lead to a significant decline in liquidity availability for equities and securities which in terms can and will lower the value of cryptocurrencies.
Poor Companies Earnings for This Quarter
The cryptocurrency market is closely tied to the stock market, and poor earnings reports from companies can have a negative impact on cryptocurrency prices. This quarter, many companies have reported lower-than-expected earnings, leading to a downturn in the stock market. Those negative earnings not only impact current stock performance but also show a slowdown in the economy which reinforces recession fears.
Interest Rates Increases
The recent increase in interest rates has also played a role in the crypto market's downturn. The central bank has increased the federal funds rate from nearly zero in March 2022 to a range of 4.75% to 5%. Higher interest rates make borrowing more expensive, which could lead to lower consumer spending and slower economic growth. Also raising rates is basically sucking money out of the system money which is used to buy all kinds of assets like stocks and crypto. One thing to note is a lot of countries are also selling US treasuries on the open market at the same time as the FED which is having a significant impact on liquidity.
Bitcoin Dominance
Bitcoin dominance refers to the percentage of the cryptocurrency market that is made up of Bitcoin. Currently, Bitcoin accounts for over 4٥% of the entire crypto market, and a decrease in its price could lead to a significant drop in the prices of other coins. As such, any decline in Bitcoin's value can trigger a broader market. Currently, BTC dominance is in an uptrend but resting right below a resistance if it gets rejected we can possibly see an alt season unfolding if not altcoins will get slaughtered in any other Bitcoin move to the downside.
In conclusion, there are several reasons why the cryptocurrency market is dumping. People taking profits, fear of a recession in the US, poor earnings reports from companies, interest rate increases, and Bitcoin dominance are all factors that could be contributing to the market correction. As always, it's important for investors to be cautious and do their research before making any investment decisions.