Why Bitcoin, Ether and most crypto prices are collapsing

Bitcoin, the Ether of many other cryptocurrencies just suffered, on the night of Wednesday to Thursday, January 6, 2022, a flash stock market crash. After reaching 47,048.25 US Dollar  per unit the day before, the price of Bitcoin plunged, at the time of writing these lines on the morning of Thursday January 6 to 43,093.33 US Dollar  Similarly, Ether went from a few hours of more than3,880.08 US Dollar  per unit to just over 3,346.00 US Dollar.

Mentioned for a time, the difficulties of miners in Kazakhstan ultimately have nothing to do with this plunge in prices, which in reality goes far beyond crypto-assets. The stock markets were indeed almost all in the red this morning. At the origin of this dive, there is in fact above all the latest announcements from the American Federal Reserve (Fed). The central bank wants to curb inflation and begin to normalize the economy, which has been very strongly impacted by Covid-19 and the measures to support the economy.

Key Rates Will Rise, Crypto Plunges

As a result, we were treated to two announcements which caused sudden changes in strategy among investors. First, the Fed will no longer buy as many Treasury bonds to finance the support measures. And then there will be a revaluation of the key rate in a few weeks, which is currently close to 0 – probably during the month of March 2022 if this is justified. Very low policy rates reduce the cost of borrowing money.

They lead more individuals and companies to invest, which has an effect on the general level of prices, particularly in sectors such as real estate. Initially the Fed had suggested that key rates would stay close to 0 to return to a situation close to full employment in the United States. But many economists and observers have pointed out that it would be desirable to raise policy rates before reaching full employment in order to avoid runaway inflation.

This has a direct effect on crypto-assets, as many investors prefer in this case to sell their riskiest assets to switch to safer assets which should become attractive again, such as sovereign bonds. The Fed could raise its rates three times in 2022. For the moment the fall in prices is only 10%, it remains to be seen whether when these measures come into force prices will continue to fall or will remain at this level.

We must therefore expect major disturbances on crypto in the coming weeks… the opportunity also, we imagine, for many investors to “buy the dip” , in other words take advantage of the drop to strengthen their crypto reserves.Currently, two very good platforms allow the quick and easy purchase of cryptocurrencies: eToro and Zengo.