Bitcoin in Freefall: Investors Brace for the Worst | Economy | D.W.

Bitcoin in Freefall: Investors Brace for the Worst |  Economy |  D.W.


The value of $20,000 per bitcoin is, according to experts, a psychological barrier. And on Saturday (06/18/2022), the cryptocurrency fell below that mark to $17,800, a level seen only in 2020, according to CoinDesk, an eight-month price-tracking platform, and bitcoin lost 60 % of its value since. early 2022, as high inflation and central bank interest rate hikes weigh on investor decisions.

Economic analysis platform CryptoRank reports that bitcoin has fallen to the average mining price of this digital asset. Additionally, the $20,000 barrier is significant because institutional investors can sell it at that price, further fueling the downward spiral.

Inflation fuels the race for security

Cryptocurrencies had a cinematic rally in 2021, as investors – brimming with cash thanks to central banks and governments keeping money flows open to mitigate the economic damage triggered by the COVID-19 pandemic – threw themselves on digital currencies. But as cheap money, coupled with supply chain bottlenecks and the energy crisis, began to push inflation to its highest level in decades, the rise began to escalate. blur. Investors started looking for safer assets.

To fight against inflation, five major central banks announced last week a tightening of monetary conditions. Among them, the US Federal Reserve (Fed) raised interest rates by 75 basis points, the biggest increase since 1994, spooking investors. They worry that higher rates could lead to a recession, as it would increase borrowing costs for consumers and businesses, and hurt their investments in cryptocurrencies and stocks.

Salvadorans protested the introduction of bitcoin for fear that their money would no longer be worth anything. (September 2021):

A “difficult path to travel”

The cryptocurrency sell-off comes against the backdrop of a broader decline in asset prices. The US S&P 500 stock index is down as fears of recession grow in the world’s largest economy. The president and chief executive of the Federal Reserve Bank of Cleveland, in the United States, Loretta Mester, said on Sunday that the risk of recession had increased in this country. “Most of these major central banks are praying for an easing of inflation and hope the data matches, but unless there is a de-escalation in the Ukraine-Russia war, the escalation will continue to fuel the fears over energy prices, so there could be a difficult road to travel,” Stephen Innes of SPI Asset Management told AFP.

The crypto world, troubled by inflation issues, saw various projects collapse, including the stablecoin terraUSD and its associated token, LUNA. Last week, crypto lender Celsius shocked investors by stopping the withdrawal of funds for customers.

This weekend, Singapore-based Three Arrows, one of the major cryptocurrency players, did not make payments to lenders. The crypto hedge fund’s troubles have added to investors’ doubts.

Despite bitcoin’s bleak outlook, Salvadoran President Nayib Bukele has doubled his bet on this virtual currency. “Stop staring at the graph and enjoy life,” he tweeted on 06.19.2022.

(pcs/ers)

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