Reasons for the crash, prospect of recovery

Owners of crypto assets have had to show strong nerves in recent weeks: The prices rattled massively into the basement. The reason for this is rising inflation and – linked to this – the prospect of rising key interest rates. This is affecting not only the crypto but also the stock market, which has shown clear parallel movements more and more often in the recent past. Added to this are the problems caused by the TerraUSD stablecoin. Terra was worth less than 0.20 US dollars at times, despite the targeted parity to the dollar, and the effects affected not only UST and its sister coin Luna, but the entire crypto market and thus also the major cryptocurrencies such as BTC, ETH, XRP and others.

In addition to a loss of value, the crash also brought a loss of reputation. In the meantime, Bitcoin was almost revered as a “saviour” and crypto against inflation. Randy Frederick of financial advisor Charles Schwab: “A lot of people thought it was an inflation hedge, but there’s very little data to back that up. Not just recently, but over the long term, that hasn’t been the case.” This misjudgement has now been clearly punished and impressively proven how much the value of cryptocurrencies is linked to tech stocks – Apple, Facebook and Google have also lost massive value.

According to Cointelegraph, major investor Raoul Pal, for example, sees the cause of cryptos’ weakness in a combination of high base rates and concerns about a recession: “Retail investors’ wages haven’t risen at the same rate as prices, so they lack excess wealth, so they have less to invest.”

Regulatory efforts, entry opportunity

The completely off-the-wall notion that prices would keep moving upwards has been shattered. Now comes what runs counter to the idea of deregulation: US policymakers plan to regulate the market more. Christine Lee, crypto expert at Coindesk: “A lot of people are hurting right now and there’s a rude awakening going on. The crypto market is like a rollercoaster ride. You have to buckle up and enjoy the ride.” Or take a bit of a gamble: Daring crypto experts advise getting in now.

According to Raoul Pal, the end of the downward trend in cryptocurrencies is likely to depend on the Fed’s rate hikes. The bottoming process is probably not yet complete and the real crash is yet to come. This is true for the crypto market and also for the stock market because of the interconnectedness. But Pal expects that the Fed will probably loosen its monetary policy in the event of the crash. “It is unlikely that the central bank will push rates up as fast and as high as many expect. I suspect that it will stop doing so again as early as the summer,” says the expert.

If this brings new liquidity into the markets, it should mean the end of the downward trend and all assets – stocks, bonds and cryptocurrencies – should rise significantly again. The prospect is definitely exciting and potential investors should follow the prices closely so as not to miss the right time to enter.

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