The crypto market in 2022 has been a sea of crimson, with some comparing the massacre to the’red wedding’ episode of the hit series Game of Thrones.
The cryptocurrency market has taken a beating since the beginning of the year, but for those who are used to the market’s volatility, it feels like any other Tuesday.
According to Trading View, the cryptocurrency market capitalization was at $2.25 trillion at the start of the year, with Bitcoin trading at $47,833 per coin.
Only four weeks into the new year, the cryptocurrency market capitalization has dropped to around $1.58 trillion, a loss of $670 billion in market capitalization. This indicates the market has dropped by almost 30% since the beginning of the year.
Bitcoin, as expected, is a big contributor to this trend, as it presently trades at $34,875, a price not seen since July 2021, and has lost about $13,000 since the beginning of the year. As of this writing, this reflects a Year-to-Date (YtD) loss of around 27.15 percent.
Bitcoin’s huge market capitalization and weight on the market contributed to a $225 billion loss, or 33.5 percent, in total market capitalization thus far in 2022, as it started the year at around $877 billion and is now at $652 billion as of this writing.
When Bitcoin sneezes, many believe the entire crypto market will develop a cold. This is evidenced by the fact that the altcoin market has experienced huge falls, with the majority of coins losing double digits. The market capitalization of altcoins has dropped by approximately 31.60 percent from $1.35 trillion at the start of the year to $919 billion, a loss of $431 billion in market capitalization.
Many people are puzzled as to why the market has taken such a battering at the start of the year, which has historically been positive for cryptocurrencies. We’ll dig right in because data suggests it’s a combination of variables.
The Federal Reserve of the United States will be a crucial factor (Fed). In order to combat rising inflation in the United States, the US Federal Reserve is predicted to raise interest rates many times throughout the year in 2022. With an increase in the interest rate, safer assets such as bonds and commercial papers will yield higher returns than before. As a result, investors are discouraged from investing in risky assets such as stocks and cryptocurrencies, as they may earn higher assured returns on safer assets.
The Fed has announced that interest rates will be raised at least three times this year, while JPMorgan CEO Jamie Dimon thinks that rates will be raised six to seven times in 2022. The market is assumed to be pricing in these characteristics, despite the fact that rate hikes are scheduled in March 2022. This casts doubt on Bitcoin’s role as an inflation hedge.
Aside from the predicted position and action of the US Federal Reserve, the sell-off on Wall Street, particularly in technology and growth-related equities, is another cause triggering the bleed in the crypto market. The cryptocurrency market and the stock market in the United States, notably the Nasdaq, have a significant association.
The Nasdaq, a tech-heavy index, lost 2.72 percent this week, its biggest weekly loss since March 2020. It had announced earlier in the week that it was in a correction after falling more than 10% from its November high. The Nasdaq has now dropped 14.3% from its November high. The reductions in the stock prices of the world’s most valuable firms, such as Apple, Tesla, and Amazon, are a big factor. Netflix stock fell 21.8 percent on Friday, impacting on the S&P 500 and Nasdaq, after the streaming giant forecasted dismal subscriber growth.