The global cryptocurrency market has experienced a sharp decline of 8% over the past week, causing panic among investors. The total market capitalization currently stands at $3.24 trillion, with major cryptocurrencies like Bitcoin, Ethereum, and Cardano all experiencing significant declines.
Bitcoin price has fallen below the crucial support level of $100,000.
Ethereum drops below $4,000.
Cardano drops below $1, raising further concerns.
Although the overall market downturn is concerning, it is not without explanation. Several key factors have driven this decline, the most important of which are profit-taking, changes in Federal Reserve policy, and recent comments by Jerome Powell regarding Bitcoin. Here are the top 3 reasons why cryptocurrency is collapsing right now.
Top 3 reasons why cryptocurrency is collapsing
1️⃣ Take profit after strong price increases
The past few months have seen cryptocurrency prices soar. Bitcoin, Ethereum, Cardano, and other major altcoins have grown more than 50% in the last 3 months, with Bitcoin even surpassing the $100,000 mark.
However, as prices rise, investors look to lock in their profits. This wave of profit-taking puts selling pressure on the market, leading to a broader sell-off. When large investors, or 'whales', begin to liquidate their positions, it triggers a chain reaction of sell-offs, leading to a sharp price decline.
For example, Cardano recently fell below the crucial support level of $1 and Ethereum dropped below $4,000, all after failing to break through key resistance points. This pattern is often seen in bull runs, when investors look to sell at higher prices.
2️⃣ Federal Reserve policy changes shake the market
The U.S. Federal Reserve plays a significant role in shaping investor sentiment. Recently, the Fed signaled it would slow the pace of interest rate cuts in 2024, contrasting with earlier expectations of a more aggressive rate-cutting strategy.
This policy shift has impacted both the stock market and the cryptocurrency market simultaneously. Investors often view cryptocurrency as a high-risk speculative asset. Therefore, when the Federal Reserve adopts a less accommodative monetary policy, risk assets like cryptocurrencies will face higher volatility and selling pressure.
The change in sentiment is largely driven by fears of tighter liquidity, as higher interest rates make it more expensive for investors to borrow and deploy money into speculative assets like cryptocurrencies. As a result, Bitcoin's price fell below $100,000 and Ethereum also dropped below $4,000.
3️⃣ Shocking statement from Jerome Powell about Bitcoin
The most surprising blow to the cryptocurrency market came from Federal Reserve Chairman Jerome Powell. In a recent press conference, Powell stated that the Federal Reserve is not permitted to hold Bitcoin and has no intention of changing that policy.
Powell's exact words were:
"We are not allowed to own Bitcoin. That is a matter for Congress to consider, but we do not expect the Federal Reserve to change the law."
This statement shattered hopes that one day the U.S. might hold Bitcoin as part of its national reserves. While many investors had speculated that the Fed might start accumulating Bitcoin as a hedge against inflation, Powell's comments clarified that this idea is no longer up for discussion.
Bitcoin reacted quickly, dropping from around $102,000 to below $95,000, dragging the rest of the market down with it. Ethereum, Cardano, and other major cryptocurrencies followed suit. This sudden decline highlights the impact of regulatory uncertainty on cryptocurrency prices.
What will the cryptocurrency price be next?
With Bitcoin below $100,000 and the broader market in turmoil, what will happen next for cryptocurrency investors? Analysts suggest that unless Bitcoin can reclaim the $100,000 support level, we may see further declines. If Bitcoin breaks below the next key support level at $94,000, a move towards $90,000 could occur.
However, long-term investors remain optimistic, pointing out that profit-taking and Fed policy changes are only temporary. They believe that Bitcoin's halving event in 2025 could bring renewed interest and spark a new bull run.
Currently, all attention is focused on the Federal Reserve's next move, as any signs of interest rate cuts or a shift towards a more dovish policy could boost the recovery in the cryptocurrency market.
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