EXPLAINER
What appears to be the immediate trigger for this crypto crash is a massive sell-off by investors amid heightened inflation fears.
In a big blow, today, the cryptocurrency markets crashed to this year's newest low. The global market cap has shrunk to USD 1.02 trillion from USD 1.10 trillion recorded yesterday. This comes after a sharp rise in US inflation triggered risk-off sentiment. The global cryptocurrency market cap has fallen by around USD 1 trillion this year.
The world's biggest and most popular cryptocurrency, Bitcoin, tumbled as much as 7% to USD 25,366, at 18-month low. Bitcoin is down more than 43% so far this year (YTD), and is trading far below its record high of USD 69,000, it had hit in November, 2021.
Read | Bitcoin falls drastically, other crypto prices also sink
Another cryptocurrency, Ethereum, has fallen to its lowest level in more than 14 months, trading currently at around USD 1350. Solana has fallen by almost 30% and is hovering around the USD 29 mark. Bitcoin, Ethereum and other major cryptocurrencies crashed this weekend, with more than USD 100 billion wiped from the combined crypto market.
This came after US Treasury Secretary Janet Yellen issued a stark crypto warning. On Sunday, Bitcoin price dropped to around USD 27,000, its lowest price since late 2020, while Ethereum crashed to under USD 1,500 per ether.
Almost every cryptocurrency, including Bitcoin is now worth half or even less than their all-time highs. What appears to be the immediate trigger for this crypto crash is a massive sell-off by investors amid heightened inflation fears. Investors are also continuing to stay away from riskier assets, which is reflecting in the stock markets as well. Countries around the globe continue to report high inflation numbers.
This week, the Federal Reserve is expected to raise its interest rate to 1.25%-1.50%, after a similar move last month. On Friday, data showed prices in the US rose faster than expected in May, rising to 8.6% after easing in April. This is fueled by rising energy and food costs, thus pushing inflation to its highest rate since 1981.
The Federal Reserve is hiking the interest rates to combat inflation over the past few months. This triggered a selloff in risk assets including crypto and stocks. Cryptocurrency prices have been in a slump this year as the Federal Reserve withdrew stimulus and hiked rates to combat inflation.
An on-going sell-off was also seen over the weekend, as BTC traded near the USD 27,000 level. Experts suggest that the crypto price plunge indicate a falling risk appetite of investors. They are clearly wary of risky assets. With all its uncertainties and volatilities, crypto is considered as one of the most volatile instruments for investment purpose.
Some experts suggest that the rising food, gas, and energy prices are putting tremendous pressure on the crypto market as Bitcoin and Ether have witnessed double-digit losses in the past 24 hours. "After the consumer price index reported the highest inflation since 1981, financial markets across the globe have seen a sharp downturn," Shivam Thakral, CEO of BuyUcoin was quoted by Financial Express.
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