Crypto Winter

6 Reasons Why Crypto Market Crash In 2022

$1 Trillion Lost, Why Bitcoin, Ethereum, Cardano and other cryptocurrencies are crashing?

Crypto market crash more than $1trillion in market value. The crypto market is 11.43% down in the last 24 hours (5.30 pm, Friday 21 January 2022).

If you are investing in cryptocurrencies, you would have noticed a downfall in the crypto market. The world’s top 100 cryptocurrency tokens are currently trading in the red. Some coins are down as much as 30 per cent. Let’s see what are the reasons that trigger the crypto market crash.

6 Reasons For Crypto Market Crash

1. Russian Central Bank proposed to ban crypto

The main reason in the downfall in the crypto market is believed to be the proposal by the Russian Central Bank to ban crypto. The Central Bank of Russia has proposed the government to ban use and mining of cryptocurriences in the Russian territory.

This decision was taken by the bank due of the following reasons.

  • Cryptocurriencies poses a risk to the financial stability
  • Sovrenity of the monetary policy
  • Financial Safety of its citizen

The legal status of cryptocurrency has shifted quite a bit, in the country, in the past. While Russia has been resistant to cryptocurriencies for years due to the citing threats of terror financing, it has still granted cryptocurrencies legal status is 2020. However, use of crypto for payments was banned.

But even before the news of the Russian Central Bank demanding an immediate ban on cryptocurrency, a large portion of the market was already falling down.

2. Federal Reserve’s Hawkish Stance

The Federal Reserve’s (Fed) Hawkish stance has made the investors more cautious of investments. Therefore, investors are moving their funds to earn higher interest rates.

3. Wider macro-economic conditions

Weak macro-economic indicators due to the resurgent of the COVID-19 wave have made bond yields significantly more attractive to investors. This is because the bond is a safer investment than cryptocurrency. Therefore, high risk investments like cryptocurrency and equity in tech growth stocks have seen a sharp sell-off.

4. Wall Street Sell Off

Lesser earnings than expected from the technology companies has further exacerbated a wider negative sentiment in the market.

5. Growing Corellation with the Traditional Market

Most market experts today believe that Bitcoin’s correlation with Wall Street is growing because of the massive institutional interest in the crypto markets. As a result, when Wall Street witness a sell-off, it reflects in the crypto market as well.

6. Leverage Long Postion

Another major reason for the sell-off is a leveraged long position. Investors who held long positions in the crypto market expecting the price to increase are selling their positions. As per a report, over long positions worth over $1 billion were liquidated in the last 24 hours. Bitcoin led the liquidation at $250 million, followed by Ethereum at $160 million.

These are the major reasons for the crypto market crash.

What happened to crypto?

Bitcoin, Ethereum, PancakeSwap, Cardano and other cryptocurrencies crashed to their lowest and continue to plunge resulting in losing over $1 trillion from the global crypto market.

What is the price of Bitcoin and Ethereum?

Bitcoin has nosedived below the psychologically important support level of $40,000 on Friday. This fall is over 10% which is a massive sell-off in the entire cryptocurrency market.

Bitcoin Crypto Market Crash
Bitcoin Crypto Market Crash

Currently, Bitcoin is trading at $34,870, even when trading activity has picked up significantly, indicating a mass sell-off in process. It is down over 40 per cent from its all-time high of $69,000.

Earlier this fall-off was because of China, as China has made cryptocurrency transactions illegal after ordering shut down of Bitcoin mining in Sichuan province. This led to crypto market prices going down in the market. But the price has increased again and touched its highest of approx $69.000.

Ethereum, the second-biggest cryptocurrency has fallen below its $3,000 support level. It is 15% down in the last 24 hours, dropping the price below at $2400.

Ethereum Crypto Market Crash
Ethereum Crypto Market Crash

Binance Coin is the fourth largest coin that has dropped over 17%, whereas Cardano has fallen over 15%. Dogecoin has collapsed over 13 per cent while Solana and Polkadot are down over 20 per cent.

The market valuation of all the cryptocurrencies combined has gone up to approx $2.5 trillion. Currently, the crypto market valuation is down to $1.65 trillion.

Crypto market down

Dispite a negative proposal from the Russian government, awarding to the legal status has meant that Russia had become one of the biggest crypto adoptors in the world.

Similarly, China’s ban on the cryptocurrency had a negative impact on the crypto market which resulted in crypto market crash. But the crypto market has overcome the loss and started to gain.

Russia is the third largest Bitcoin mining hub in the world.

The news of ban of cryptocurrency has soured the market sentiment when global factors have resulted a significant fall in the crypto market. This is the time of panic sell. And when panic selling combines with leverage, the result is even more disastrous.

Though it’s not the first major fall in crypto in the past two years, investors say that even a 30 per cent fall is the only blimp in the wider bull rally that crypto seems to be on.

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