The cryptocurrency market continues to consolidate as most cryptos turn red after a greenish week. Bitcoin has fallen over 4% since last week, returning to the 19K price zone. Ethereum also topped the price $1.3K lower, confirming its current sideways trend. Why is crypto down today? Will cryptocurrencies rise further?
What happens to crypto
Since July 2022, the crypto market has started a promising uptrend. The anticipation of the Ethereum merger has helped drive up the prices of various cryptocurrencies. Market capitalization fell from $900 billion to $1.2 trillion. It peaked in mid-August 2022. However, after the merger, most retail traders and investors barely noticed a change in crypto prices. A massive sell-off occurred, driving prices down. The current market capitalization is back to its previous valuation of $900 billion and has even been consolidating since mid-September 2022.
Why Crypto Down 2022
The year 2022 has obviously been a bearish year for cryptocurrencies. Although there are signs of a comeback, they often only come after extensive consolidations. There are several reasons why cryptos have turned bearish in 2022:
The previous years of 2020 and 2021 saw a massive increase in crypto prices. The USD cryptocurrency market capitalization at the start of 2020 was around $250 billion. It shot up 10x to reach $2.5 trillion towards the end of 2021. This price increase was unsustainable and required a price breather. What goes up must come down. Not necessarily in a proportionate way, but at least within the framework of price adjustments.
Profit taking is an integral activity for day traders, investors and hedge funds. When taking profits, the user sells part of their position and liquidates their holdings. This creates an outflow of money from the crypto market, which is also a direct reason for the sharp price drops.
Geopolitics also plays an important role in how people invest. In times of uncertainty, people often liquidate everything and keep cash with them. Rising tensions between Russia and the EU have shattered many markets around the world. Imagine having crypto investments, but you have to flee your house and take all your possessions with you with cash for the unknown journey…your cryptos won’t do you any good, will they? Same thing if you were an investor anticipating a bad macro economy to come, you would liquidate directly.
Zooming out and seeing the bigger picture, you will understand that the current bearish year is completely normal. From a market cap of $250 billion in 2020 to a current market cap of $920 billion, the crypto market is definitely in good shape for the long term. The question remains, when will the crypto market resume its bullish trend? Well, the short answer is not next week.
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