Why Are BTC, SHIB, and Altcoins Falling? What to Expect Now?

BTC, SHIB and altcoin prices continue to drop and there is no bottom in sight. Here are three reasons why cryptocurrency prices are falling. In addition, what awaits the markets next?

Cryptocurrency market is stuck in the black winter!

Bitcoin (BTC) failed in an attempt to lock in the benefits above the $20,500 level. That’s why crypto prices, including SHIB, continued to drop on October 7. For the past 115 days, BTC price has been stable at mid-$17,600 to $24,500. Also, the current price action is intensifying in the lower part of the range. The majority of altcoin prices, including Ethereum (ETH) and SHIB, are also seeing single-digit losses. The crypto market in general is following the pullback that is happening in the stock markets.

Investors know that cryptocurrencies exhibit above-average volatility. But this year’s decline has been huge. Bitcoin has accurately reached the all-time high of $69,400 by the end of 2021. However, its price later dropped to a one-year low of $17,600 within 11 months. Currently, investors continue to be risk-averse. They are waiting to see if the Federal Reserve’s current monetary policy will alleviate persistently high inflation in the United States. Therefore, investor sentiment remains soft.

New data on the US labor market shows that for the seventh consecutive month, the market added more jobs than expected. This goes against the Fed’s goal of cooling the economy as a way of capping inflation. The strength of the labor market increases the Fed’s odds to continue with 0.75% rate hikes. In fact, there are rumors of a possible 1% increase in the near future.

3 reasons why the prices of BTC, SHIB and altcoins are falling

1-Central Bank rate hike

Raising interest rates increases the cost of borrowing for consumers and businesses. This has the knock-on effect of increasing business operational costs, costs of goods and services, costs of production, prices, and ultimately, the cost of almost everything. High, uncontrollable inflation is the most important reason the Fed is raising interest rates. Since rate hikes began in March 2022, Bitcoin and the broader crypto market have been in a correction.

When monetary policy or the metrics that measure the strength of the economy change, risk assets tend to signal or move earlier than stocks. In 2021, the Fed finally began to signal its plans to raise interest rates. The information shows that the Bitcoin price has recovered sharply until December 2021. In a way, Bitcoin and Ethereum were canaries in the coal mine pointing to what awaited the stock markets.

If inflation starts to subside, the economy improves, or the Fed begins to signal a turning point in current monetary policy, risk assets such as Bitcoin and altcoins, including SHIB, are likely to become “canaries in the coal mine” again, reflecting the risk return of sentiment from investors.

2-The threat of permanent regulation

The cryptocurrency industry and regulators have a long history of disagreeing, either due to various misunderstandings or mistrust about the actual use-case of digital assets. Without a working framework for crypto division regulation, different countries and states have multiple conflicting policies on how cryptocurrencies are classified and what exactly constitutes the legal payment system.

This lack of clarity is weighing on the growth and innovation in the division. Many analysts say that the adoption of cryptocurrencies cannot happen without the enactment of a set of agreed and agreed laws. Risk assets are heavily influenced by investor sentiment. This trend extends to Bitcoin and altcoins. To date, the threat of unfriendly cryptocurrency regulations or, in the worst case, a direct ban continues to affect crypto prices almost monthly.

3-Scams and Ponzi liquidations

Scams, Ponzi schemes and sharp market volatility also played a valuable role in falling crypto prices throughout 2022. Bad news and events that jeopardize market liquidity tend to have disastrous consequences due to the lack of regulation, the youth of the cryptocurrency industry and the market.

Koindeks.com Terra and Celsius explosions are the first ones that come to mind. Also, Three Arrows Capital’s (3AC) misuse of leverage and client funds. These have led to successive blows to asset prices in the crypto market. Bitcoin is currently the largest asset in terms of market cap in the segment. Thus, historically, altcoin prices tend to follow BTC price. Bitcoin price dropped sharply due to multiple liquidations as the Terra ecosystem collapsed. This had a very bad effect on investor sentiment. Exactly what happened when Voyager, 3AC and Celsius crashed.

What can be expected for the rest from 2022 to 2023?

Fed policy drives the factors affecting falling prices in the crypto market. In other words, the Fed’s power to raise, pause or lower interest rates will continue to have a direct impact on BTC price, SHIB price and altcoin prices.

In the middle, investors’ risk appetite will remain muted. Also, potential crypto traders will wait for signs of US inflation peaking. For this, it will follow the Fed’s use of language, which is an indicator of a political axis.

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