This month, BTC has fallen from USD 57,000 to USD 48,000, and ETH has dropped from USD 4,700 to USD 4,200. The fall in the value of shares and changes in the FED policy affected Bitcoin.
The value of BTC and ETH fell by more than 5% in 24 hours. In addition, the entire capitalization of the cryptocurrency market had a loss of almost 6%, according to CoinGecko. Stock prices also trended lower after Chinese real estate developers Evergrande and Kaisa could not make scheduled payments on US dollar bonds.
Bitcoin, the first cryptocurrency by market capitalization, started December with a price above USD 57,000 but is currently below USD 48,000. The same is happening to many altcoins like Ether, which went from above USD 4,700 on December 1st to below USD 4,200.
Since the beginning of the month, the total market capitalization of cryptocurrencies has dropped by USD 250 billion. Most losses occurred on December 3rd, when the price of Bitcoin dropped by 17% in just a few hours. Since then, it has recovered some gains before falling again.
Different Factors Cause the Drop in the Price of Bitcoin
Many reasons led to that sale, in which investors in the derivatives markets liquidated their positions, creating a cascade effect of further liquidations. However, the increasing movements of the cryptocurrency in parallel with equity markets were the main factor leading to those settlements. The value of shares fell due to concerns about the COVID-19 Omicron variant and changes in the Federal Reserve policy, which also happened to Bitcoin.
The Dow Jones Industrial Average, an index of stocks of 30 US companies, was flat. However, the Nasdaq fell by more than 1%, and the S&P 500 began to reverse gains from earlier in the week.
Two Chinese real estate developers could not cope with declining home sales and government loan restrictions, probably affecting the United States. Kaisa defaulted on a USD 400-million bond, while China Evergrande Group missed its latest interest payment deadline earlier this week. Due to the overlap between the leading world economies, this seems to be the beginning of another financial crisis.
Bitcoin has positioned itself as a hedge against inflation and a safe asset. However, the injection of money by institutional investors into the cryptocurrency has made its market less immune to movements from other sectors.
Despite the Fall in Prices, Investors Still Trust Cryptocurrencies
Several times, the cryptocurrency market has experienced crashes due to influential events. For example, when Tesla announced that it would not accept payments with Bitcoin, the price of all cryptocurrencies plummeted.
Comments from well-known figures have also affected the price of crypto assets negatively. Some politicians and regulators have said they favor illicit activities like money laundering and terrorism financing.
However, several studies have indicated that other business activities cause more harm to the environment than cryptocurrency mining. Besides, some others have revealed that cryptocurrencies represent a small percentage of crime-related activities.
Investors are increasingly aware that the cryptocurrency market has its ups and downs and will eventually recover. Since its beginning, Bitcoin has proved that it can resume and even exceed its previous all-time highs, even after its worst lows.
By Alexander Salazar
