The decline in the value of cryptos has come when stock markets across the globe also fell in the past few days. Earlier today, traditional equity markets in Asia have opened lower, with Nikkei – Japan’s benchmark index – falling by about 2%. Bitcoin represents roughly a third of the crypto market with an aggregate value of $650 billion.
Ethereum (ETH), the largest altcoin, has also declined by over 10% in the week ended May 7. Even though volatility has been the norm, notably, the crypto market had been comparatively calm during a major portion of 2022.
For several years in the past, cryptocurrency market trading was dominated by large investors. However, in recent times, the cryptocurrency market is recording a huge entry of professional traders, including hedge funds and large money managers. As the influx of traders in increased, the cryptocurrency market has become more aligned with traditional equity markets.
Several institutional investors who invest in cryptos categorize them as riskier assets, comparable with tech stocks. During times of uncertainty, traditional investors will churn their portfolios by liquidating riskier assets and moving their funds to safer investments.
In the past few days, central banks across the globe, including the UK, the US, and Australia, lifted benchmark interest rates as they take measures to manage increasing prices. The US Federal Reserve lifted its prime lending rate by 50 basis points, underlining the largest rate hike in over two decades.
That has sparked additional worries among certain investors that inflationary pressure and rising borrowing costs could have a huge effect on worldwide economic growth. Investors are also worried about the effect of the Russia-Ukraine conflict on the global economy.
Notably, last year, Bitcoin got the credit of being a legal tender in Central African Republic and El Salvador. As El Salvador stated that it would permit consumers to utilize the cryptos in all transactions, along with the US dollar, the International Monetary Fund has advised the government to reconsider and terminate the decision.