We have been witnessing sharp price movements in the crypto market for several days. Everyone who has invested in the crypto space has lost money more or less. So what is the reason for these sales?
In November of last year, there was complete enthusiasm in both the stock markets and the crypto market. The Covid19 epidemic had become controllable, and it was thought that the supply shortages affecting the economies would be resolved in a short time. There were those who were worried about high inflation, but market players did not pay much attention to this concern.
By January, inflation was seen to be on the rise and the Fed's interest rate hike came to the fore. An increase in interest rates would mean an increase in borrowing costs. Technology-related stocks are often invested because of the cash flows they will generate in the future. This means that their activities have to be carried out for several years through funds provided by investors or creditors. We can also consider crypto assets in this context. Although they still generate some amount of income, we invest in cryptocurrencies mainly because of the high income to be generated in the future.
Photo by Andrey Metelev on Unsplash
Due to interest hike expectations, on January 23, the Bitcoin price dropped to 35k. The support of the Bitcoin price at this level led to a partial increase in confidence.
In February-March and April, the crypto market had a volatile course. During this period, the market was hoping that the FED would take a step back in interest rate hikes and tightening. It was known that high-interest rates negatively affected economic activity. The Fed could not take the risk of throwing the economy into recession.
On May 5, the FED increased interest rates by 0.5 percentage points. Thus, it was seen that the FED was determined to increase interest rates. Although the initial reaction to the decision was positive, sales accelerated in both the Nasdaq and the crypto market the next day. Nasdaq 100 has lost 37% since the beginning of the year, while Bitcoin has lost 42%.
Another factor that increased the price volatility in the crypto market was what happened in the Terra ecosystem. Terra is a blockchain specializing in algorithmic stable coins. Terra's native coin, Luna, was ranked ninth among all coins with a market cap of $22 billion four days ago.
Terra USD's fall below the $1 peg on Monday (May 9th) caused Luna to depreciate rapidly. Currently, Luna's market capitalization has dropped to 0.5 billion USD. This value indicates a 44-fold decrease compared to 4 days ago, and the state of the Terra ecosystem is a stress factor for the crypto market.
The sales experienced brought the liquidations arising from leveraged transactions to the agenda, as in the past. According to Coinglass data, a high amount of liquidation occurred especially on Monday and Wednesday due to credit/leveraged transactions.
One of the reasons for the stress in the market was that the 29-30k USD resistance, which was considered critical for Bitcoin, was broken. If we close this week below the 29k level, we can safely say that we have entered a bear market. In fact, bear market pricing has already been activated in altcoins.
Conclusion
Hive ecosystem coins have lost value, similar to other coins. Is it a buying opportunity? I bought Hive for 30 cents in June last year. Last fall, the Hive price reached $3.
It is not easy to make any claims about the direction of the market. Still, it seems to me that valuations have become quite attractive for long-term investors. On the other hand, we all know that prices may drop further. I have been making calculations to increase my Hive and Leo portfolio using the stable coins I have for some time. I will take action after the dust in the market calms.
Thank you for reading.
Posted Using LeoFinance Beta