Bitcoin investors have been hoping for a trend reversal for weeks. For a long time, the price of the crypto asset was in the $30,000 range. Now another psychologically important mark has been broken down.
High inflation and rising interest rates in many places are making digital currencies like Bitcoin more and more difficult.
At the start of the week, the price of the oldest and best-known crypto system fell to its lowest level in a year and a half. On the Bitstamp trading platform, a bitcoin cost around 23,300 US dollars at the low, the lowest since December 2020. Before the weekend, about $30,000 had to be paid for a bitcoin.
Other digital stocks under pressure too
Not only Bitcoin, the largest internet currency by market value, but also other digital stocks were under considerable pressure on Monday. Ether, the number two in the crypto market, fell as low as $1176. This is the lowest level since early 2021. It recovered only slightly by mid-afternoon. The market value of all around 19,800 internet currencies temporarily fell to $971 billion. The record high from last November is about three times as high at almost three trillion dollars.
The most important reason for the recent drop in prices are rising capital market interest rates worldwide. The yields reflect the course of a much tighter monetary policy pursued by many central banks. Markets were recently encouraged by higher-than-expected inflation data from the US last Friday, hitting a 40-year high. The European Central Bank (ECB) also provided a boost to interest rates last week, which, in the opinion of many analysts, surprisingly announced that interest rates would be raised in the near future.
Unsafe financial investments and no current income
Crypto assets suffer from the development in two ways. On the one hand, they are considered to be very insecure financial investments, as they usually fluctuate greatly in price. Since the general market environment is currently also becoming significantly clouded with rising interest rates, digital stocks are suffering particularly badly from the poorer mood. In addition, cryptocurrencies do not generate any current income. If interest rates on fixed-income securities rise, this disadvantage becomes more pronounced, which depresses prices.
Crypto expert Timo Emden from Emden Research cites problems at the crypto lender Celsius Network as an additional reason for the sharp fall in prices. The provider had suspended withdrawals and transfers for the time being. Celsius belongs to the area of so-called decentralized financial services, a rapidly rising branch in the crypto scene. Here, for example, transactions are processed using blockchain technology without traditional financial institutions such as banks being involved. Market participants were reminded of the problems with the stablecoin TerraUSD a few weeks ago, which had also triggered a slide in the crypto market.
Digital currencies had been steadily increasing until November of last year. At the time, some market participants saw crypto assets as protection against the inflation-related devaluation of classic currencies such as dollars or euros. This picture has now changed. Since hitting a record high of around $69,000 last November, bitcoin has fallen more than 60 percent.