The cryptocurrency market is facing sharp declines due to a combination of economic, regulatory, and market factors. Here are some of the main reasons that explain the recent volatility:
1. Rising Global Interest Rates
Central banks, such as the Federal Reserve (US), have been raising interest rates to combat inflation. Higher interest rates make riskier assets, such as cryptocurrencies, less attractive compared to traditional investments, such as bonds.
2. Regulatory Uncertainties
Many governments are implementing stricter regulations on cryptocurrencies. Actions such as banning specific platforms or limiting the use of stablecoins negatively impact the sector.
3. Liquidation and Systemic Risk
Failures of large crypto companies (such as exchanges and DeFi projects) in 2023 continue to generate distrust among investors. This causes a mass liquidation, impacting prices.
4. Decrease in General Interest (Bear Market)
Since the all-time high in 2021, the cryptocurrency market has entered a "bear market", with less participation from institutional and retail investors.
5. Influence of Large Selling (Whales)
Investors with large amounts of assets (“whales”) can trigger rapid declines by selling large volumes, which affects market sentiment and increases volatility.
6. Risk Aversion in the Global Market
Geopolitical tensions, wars and recessions impact all financial markets. In times of high risk aversion, investors prefer to reduce their exposure to volatile assets.
How Should Investors Proceed?
Portfolio diversification: Combine traditional and digital assets.
Long-term focus: Projects with strong fundamentals tend to recover.
Risk analysis: Don't invest more than you can afford to lose.
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