As of yesterday, Bitcoin had printed red candles for the seventh consecutive day and slid to $22,600, the lowest price since December 2020, in the later hours of the day.
At press time, the flagship digital currency was trading at $23,800, 65.5 per cent short of the all-time high ($69,000) recorded last on November 1, 2021.
Other major cryptocurrencies, including the second-highest, capitalised Ethereum, have also been trading in the red zone with some plummeting by as much as 50 per cent in 24 hours.
The market has been on a downward movement since December after it failed to sustain the November rally when the market capitalisation peaked at $3.05 trillion. Yesterday, the market capitalisation tumbled below $1 trillion with fears that it could sink further.
Besides February and March, the market has closed in the past seven months in the negative region.
An interest rate hike, fear of regulations, the Russian-Ukraine War and inflationary pressure are among the undoing factors. But the sell-off of the past few weeks followed the crisis of confidence triggered by the de-pegging Terra stable coin (UST) and alleged manipulations and rug-pull.
While UST de-pegged against the dollar, Terra’s native currency, Luna, fell from $119 to a fraction of a cent in a matter of days. Those who staked the coin and could not sell saw their savings tumble to near zero-dollar value in less than a week.
Allegations of insider trading and alleged manipulations by Terra Korean founder, Do Kwon, who reportedly cashed out about $2.7 billion shortly before the bubble bust triggered widespread fear.
According to data monitored by The Guardian, crypto fear and greed index – a metric that determines the emotions of investors – is on extreme fear. That suggests that the market could see a further depressed performance in the coming days as traders are watching for a reasonable price level to dump their holdings.
For the first time, Bitcoin mimics the stock market and reacts negatively to inflation. Previously, the new asset had an inverse relationship with stock market performance and acted as a buffer to inflation.
The recent crash of the market followed the rise in US inflation to 8.6 per cent in May. Globally, stock markets are in red with economists divided on whether the world is going through a correction or in the middle of a long-term bearish trend.
The selloff in global stocks sent the S&P 500 careening more than 20 per cent from its January record as speculation that a more aggressive Federal Reserve policy to combat inflation could sink the economy into a recession.
Treasury yields surged to multi-year highs while the dollar strengthened versus major peers, suggesting that more risky assets are being divested in favour of dollar holding. Dollar strength index has remained bullish in the past three months.
Economists had warned that the US quantitative easing, which began this month, coupled with high interest could trigger a recession. Interestingly, other central banks have followed the Fed’s hawkish stance raising interest in reaction to a fear of worsening inflation.
