The crypto market is no fun for most investors right now. In January we still saw heavy losses on the market. A few weeks ago there was finally a trend reversal and cryptocurrencies rose again with double-digit percentage values. But now it came back to heavier losses. We give 3 reasons why cryptocurrencies are struggling in 2022.
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Reasons for cryptocurrency losses in 2022 – 1. Fear of rising interest rates
The low key interest rates of American and European central banks have created excellent conditions for risky investments in recent months. This also had an extremely positive effect on cryptocurrencies until 2022. Many institutional investors in particular invested heavily in various projects.
With the rising inflation rates, the American Federal Reserve is now being forced to take countermeasures. It intends to raise key interest rates in the near future in order to counteract inflation. But this project has been weighing on cryptocurrency prices for weeks in 2022, as many investors should then shy away from risky investments.
2. Entanglement with the traditional financial market
In 2021 there was a major institutional adaptation of cryptocurrencies. More and more banks, insurance companies and funds are investing in the coins. In addition, the influence of the large Bitcoin addresses, addresses with extremely large numbers of Bitcoins, so-called Bitcoin whales, increased.
Because the traditional financial world is having more and more influence on Bitcoin and other cryptocurrencies, the interdependence with the traditional financial markets is increasing. These react sensitively to crises. The same seems to be happening with the crypto market now. Bad external news is increasingly determining the course of cryptocurrencies in 2022.
Reasons for Cryptocurrency Losses 2022 – 3. Big disappointment for short-term investors
In the fall of 2021, it still looked like the Bitcoin price could break through $100,000 in the coming months. Many speculative investors were hoping for the big bull run like in 2017. However, this did not materialize and numerous short-term investors sold Bitcoin at a loss, which drove the price down significantly in December and January.
In addition, numerous speculative investors came into the market who were first disappointed with their long positions and had to sell at a loss and have now opened short positions, i.e. bet on losses in Bitcoin. The liquidation of these positions repeatedly led to heavy losses in cryptocurrencies in 2022.
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