With central banks in developed countries increasing interest rates to combat rising inflation, investors are exiting cryptocurrency market. Bitcoin dropped below $20,000 on Saturday to its lowest level in 18 months. The cryptocurrency was down 7.1 per cent to $18,993 having earlier touched $18,732, its lowest since December 2020.
Cryptocurrencies including bitcoin, etherium and dogecoin, which had attracted a lot of interest in 2021 due to the stellar rally in prices have been on a downward slide over the past 6-8 months due to global cues.
Weak global cues
The trouble for cryptos began when China clamped down on private cryptocurrency trading and mining in September last year. Talks about Indian government planning to ban transactions in private cryptocurrencies towards the end of last year further roiled sentiments. But now crypto markets are seeing a correction due to weak global cues. Internationally, the stock and crypto markets have become highly correlated. The inflation rate globally has also been a major concern for investors. In the US, it is at a 40-year high at 8.6 per cent and in the UK at 9 per cent; interest rate hikes across major crypto nations are also a growing concern as they lessen liquidity. Both the indicators have led to a massive sell-off, experts said.
As a result, Bitcoins are down by nearly 60 per cent over the last year, while Etherium is down by over 70 per cent. The value of the global crypto market has tumbled 70 per cent to under $900 billion from a peak of $2.97 trillion in November.
It is not just retail investors who have lost big money but also sovereign governments and listed entities. Around 10 globally public listed companies and three governments including Ukraine, El Salvador and Georgia holding Bitcoins stand to lose over $2.56 billion, according to data from crypto research firm CREBACO Global.