Bitcoin crashed along with the rest of the crypto market and many investors are asking themselves whether this is the beginning of a bear market or the next best opportunity to buy. But why did Bitcoin crash and what kind of conclusions can we draw from the most recent dip of the market?
Fed will increase interest rates
Bitcoin crashed along with the stock market. The reason for this unusual behavior is the protocols of the last Fed meeting in December 2021. The Fed is especially concerned about the rising inflation and is most likely to increase the interest rates faster than expected. According to several reports, many analysts believe that this could already happen in March and it is expected that rates could be increased as much as three times this year.
This outlook led to massive sales in the stock and crypto market. Tech stocks like Alphabet, Microsoft, and Meta lost between 3,7 and 4,6 percent yesterday. While the average crypto investor wouldn’t even flinch presented with these numbers, such intraday losses are highly unusual in the stock market.
The fact that Bitcoin is showing a strong correction in price indicates two things. Investors don’t seem to be comfortable holding BTC as a safe haven asset. Instead of trusting in Bitcoin, they share the expectation that it is better to opt for cash if the Fed is going to increase the interest rates in reaction to the highest inflation in the last 40 years. And the second takeaway is that Bitcoin has become a more mature asset. It is not completely independent in terms of broader economic development.
Will we see a bear market?
At the time of writing, the market sentiment is already looking bearish. With over 800 million US-Dollars in long positions liquidated in the futures market, it is hard to speak of a bullish development. But despite the fact that the current situation doesn’t look too bright, it is worth taking a look over your shoulder and the path that lies behind us.
In January 2021 Bitcoin started with a price of around 25.500 Euros. The crypto market is in fact highly volatile. Still, it is the year 2022 and Bitcoin is worth around 38.000 Euros at the time of writing. It is one of the most successful assets of all time.
Even if the situation should turn bearish midterm, many traders and analysts believe that there is a long-term vision for Bitcoin that is more than bullish. For those who share this assessment, the current situation is an opportunity to buy the dip. However, please keep in mind that neither analysts nor us, possess a crystal ball. Only time will tell what the future has in store for Bitcoin, and crypto in general.