Three Main Reasons for Bitcoin's Recent Decline: Options, Interest Rates, and Fed Policy

According to research, around 26% of U.S. investors own cryptocurrencies.

While Bitcoin's collapse and recovery after the week saw no change in the cryptocurrency market, Bitcoin's growth was also believed to involve many traditional assets.

From Friday night to Saturday morning, the value of Bitcoin fell more than 20%, hitting $ 42,000 at a time. As of Monday afternoon, Bitcoin had recouped some of its losses and was trading around US $ 50,528 on Tuesday afternoon, according to data from CoinDesk. It was still below $ 53,670 on Friday afternoon and about 27% below the November high of $ 68,990.

Traders said part of the recent decline was due to how the options exchange worked. But, they say, the slowdown was also offset by concerns about interest rates, risks to the economy and Fed policy, which recently led to traded changes in the retail and market. other industries.

DailyFX analyst Nicholas Cawley said having a strong relationship with the crypto industry and the stock market is riskier than the Nasdaq. He said that just a few years ago the relationship between the two was weak.

Two years ago, Bitcoin became a treasure for many investors. Grayscale Investments surveyed around 1,000 investors and found that around 26% of U.S. investors own cryptocurrencies. When the organization did the same research two years ago, it did not report the number of respondents holding Bitcoin, but instead focused on the number of respondents who were open to the idea of ​​holding Bitcoin.

According to asset manager CoinShares, since this year, investors have invested a total of $ 9 billion in cryptocurrency, surpassing the total investment of $ 5.6 billion by 2020. the size of the crypto -Money under management increased from $ 18.8 billion in 2020 to $ 73 billion in 2020.

Considering the changing nature of crypto traders, these crypto currencies attract more participants than traders using mobile sites or mobile apps.

This relationship is also evident in the movement of Bitcoin and major commodities. Like the Dow Jones, S&P 500 and Nasdaq Composite indices, Bitcoin prices fell after a new high appeared in March 2020. After the Fed and other central banks began to cut rates of interest. capitalization, Bitcoin began to rise further, as did the market. This makes risky products more profitable for investors than lower profits, even safer for investors.

Federal Reserve Chairman Jerome Powell told Congress last week that the Fed plans to step up its exit from fiscal policy and hike rates sooner than expected. A rise in interest rates will reduce the attractiveness of risky assets like Bitcoin.

After President Powell made the remarks, the market changed, but not significantly. Last week, the Dow Jones Industrial Average fell more than 1% and the Nasdaq Composite fell 2.6%. The ups and downs of Bitcoin are usually bigger than the stock market. Bitcoin fell around 8% last week, mostly on Friday.

However, regular trading on the US stock market ended Friday at 4 p.m. EST. The Bitcoin trading market never stops. “The weakness at the end of last week continued through the week the economy was calm,” said NYDIG, a New York-based real estate company and firm.

DailyFX's Cawley said from Friday night to Saturday "there was a vicious cycle of low income, high effort and overconfidence." When the price of Bitcoin falls below a support level (he estimates this point around $ 53,000), it impacts traders.

According to data from research firm Coinlass, the volume of option contract closeouts increased sharply during this period. About $ 2.5 billion in options were wiped out last Friday, down from just $ 162 million on Thursday, including $ 2.1 billion in long-term, or Bitcoin's bullish gambling options. . About 6.4% of leveraged coastal jobs were completed in the 24-hour period from Friday to Saturday, the highest rate since April, according to NYDIG data. During this period, around 28% of the leveraged coastal jobs were liquidated. The liquidation contract is liquidated.

“It's a storm of the best,” Cawley said, adding that several factors have contributed to Bitcoin.

Mati Greenspan, founder and CEO of Quantum Economics, said the research firm is focused on cryptocurrencies.

“In a business that is increasingly at risk, this treatment is inevitable,” said Greenspan. But he also said that Bitcoin should follow the market. Assets are seen as another way for banks to invest.

“The more I think about it, the clearer the relationship between cryptocurrencies and the stock market, it makes me think,” he said.