A variety of factors have played a role into the ongoing volatility and downward trend in prices for cryptocurrency investments.
While cryptocurrencies have vaulted in terms of mainstream interest as a radical new form of investment, their ever-present volatile nature has continued to plague investors.
Here the Investing News Network (INN) offers a breakdown what is ailing the value of cryptocurrencies.
What’s causing crypto prices to go down?
Since the start of 2022 experts have predicted the market would continue to face heavy periods of volatility.
“Volatility goes hand in hand with this market, so there will undoubtedly be some periods of heavy sell-side pressure, but the market’s performance in the last two years has placed crypto firmly in mainstream discourse, and has further legitimized the industry as an integral part of the modern investor’s portfolio,” said Justin Hartzman, CEO and co-founder of CoinSmart Financial (NEO:SMRT,FSE:IIR).
Cryptocurrency exchange FTX CEO Sam Bankman-Fried recently told NPR he views the primary reason for the current cryptocurrency value downturn as related to the actions of the US Federal Reserve.
“The core driver of (the crypto downturn) has been the Fed,” Bankman-Fried said.
Interest rates have consistently been increased by the financial federal authority.
Despite an all-time high level of mainstream and acceptance for blockchain investments, including the emergence of banks and other serious businesses adopting new age digital investment tools, cryptocurrencies continue to offer pitfalls for newcomers.
The digital asset also continues to trade on sentiment, since digital assets are backed by what a user may be willing to pay for it, so the downturns can accelerate quickly.
“That’s when it gets scary for people because, if enough people head for the exit, there’s no floor. There’s nothing to stop it trading at $10,000 tomorrow, if enough people give up or are forced to sell,” FT markets editor Katie Martin told the BBC.
Long term vs. day trading
The current struggles of the market may affect the condition of newcomers into the crypto world but it appears, so far, those with a long term investment thesis aren’t letting the losses affect them.
Jason Yanowitz, co-founder of Blockworks, told CNN Business the previous bear market for bitcoin in 2017 and 2018 led to gigantic bounce back opportunities for the leading cryptocurrency.
“If you bought (bitcoin) at the peak of the 2017 bull run (around $20,000), you saw a decline of 80% over the following year. But if you continued to hold, you’d be up nearly 60% right now — even after the crypto market’s most recent decline from all-time highs last November,” Felix Honigwachs, CEO of Xchange Monster, added in the report.
Som Seif, founder and CEO of Purpose Investments, previously told INN those prepared to see the long term aspect of cryptocurrencies will be ready for the downturns. “It’s still betting on the future,” he said.
Reputation and sentiment affect crypto investments
The fast pace nature of cryptocurrency investments and trading make it so there are no dull moments in this market.
As the reality of a bear market settles in for the sector, it will be crucial for investors to understand the role sentiment plays with cryptocurrencies.
When it comes to evaluating sentiment in bitcoin, the bitcoin fear and greed index acts as a tool for investors to see the peaks and valleys of the crypto space.
“Extreme fear can be a sign that investors are too worried. That could be a buying opportunity,” the index page describes. “When Investors are getting too greedy, that means the market is due for a correction.”
Investor takeaway
The valuation of cryptocurrencies has also affected the performance of operators looking to utilize blockchain technologies for their primary business. As said to INN by Richard Baker, CEO of TAAL Distributed Information Technologies (CSE:TAAL,OTCQX:TAALF): “There’s a lot of distortion in the industry.”
Don’t forget to follow us @INN_Technology for real-time updates!
Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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