Leading cryptocurrencies fall over 10%
Over the last seven days Ethereum (ETH) has fallen 13.3%, Binance Coin (BNB) 12.4%, and Bitcoin (BTC) by 10%. Both BTC and ETH hit three months lows, and still have yet to recover. Few coins have seen gains in the last week, Chainlink (LINK) and Cosmos (ATOM) being exceptions. The market cap of the whole crypto market has been in decline since the middle of November. The market saw a major dip in early December, and then continued the slow decline. Now in early January the market has once again seen a significant drop.
Even with the market dipping in December, it still seemed bullish. My initial predictions for 2022 were incorrect, I said the market would not end up dipping into the $40,000-42,000 range, due to the strong supports above those levels. However, the market did end up dipping into these levels. At this point it would be hard to call the market bullish, after its seen a slow decline over the last few months, and when it does go up, it quickly corrects and continues to go back down. There is still strong support for Bitcoin around the $40,000 price, but with how things have been going, a price below $40,000 is possible.
While this may seem alarming, especially to those who recently got into Bitcoin, there is little cause for concern. It would be more concerning if the market only increased, never seeing any corrections or dips. A healthy market has its ups and downs, just like with stocks or any other asset.
Kazakhstan Bitcoin mining
Protests started in Kazakhstan earlier this week due to an increase in gas prices imposed by the government. These quickly transformed into mass protest against the way the country governed. The Central Asian country has seen telephone and internet outages, and there have been several buildings burnt to the ground, along with many unconfirmed causalities. Kazakhstan is a key exporter of natural resources for both China and Russia, two of the largest global economies.
The internet outages have additionally affected the Bitcoin mining hashrate significantly. According to the Cambridge Bitcoin Electricity Consumption Index, Kazakhstan accounts for 18% of Bitcoin’s hashrate. Bitcoin runs on a Proof-of-Work consensus method. Proof-of-Work essentially means that the network is more secure when more computers are mining on the blockchain. With Kazakhstan’s internet going offline, part of Bitcoin’s network goes offline as well. The security of the network, not the price, is negatively affected. This can scare some investors, causing them to pull their money out of Bitcoin. This is a contributing factor to the dips in BTC in recent days, and when BTC dips, the rest of the market tends to as well.
Federal Reserve December meeting
In their December meeting, Federal Reserve officials discussed reducing their bond holdings on their balance sheet. During the meeting, members emphasized that they feel the economy is getting stronger and that inflation is increasing. By shrinking their balance sheet and raising interest rates, the Fed hopes to combat increasingly high inflation rates. Wall Street did not respond well to this meetings report, leading to a drop in stock and real estate prices. Since the cryptocurrency market, for the time being, does correlate with stocks in price, the market saw additional dips.
Most of the cryptocurrency market is decentralized, which makes it difficult to pinpoint any one reason for a change in price. It is even harder to speculate future changes in price. Crypto has had a rough start to 2022, leading many to claim the market is now bearish. The signals are starting to show bearish as well, and one would be hard pressed to make a case for a bull market at the moment. However, once again it comes back to cryptocurrency being a largely decentralized asset. It is difficult to claim that the price will move one way or the other, because there are too many factors in play to ever know for certain what will happen.