Yesterday, news about inflation that was worse than expected sent stock and cryptocurrency prices plunging. According to the most recent consumer price index (CPI) data, inflation increased by 0.8 percent month-over-month and 8.3 percent year-over-year. The economists had anticipated a slight decrease. This indicates that high prices will not decrease for consumers. It means that higher-risk assets will continue to face price pressure from investors.
The Federal Reserve is more likely to raise interest rates by 0.75 percent later this month due to the subpar numbers. People avoid riskier investments like cryptocurrency when interest rates rise, and many economists worry that the Fed’s aggressive actions could lead to a severe recession.
The leading cryptocurrency, Bitcoin (BTC), had been steadily rising this week. The tentative upswing in cryptocurrencies was abruptly stopped. Before the announcement of inflation, BTC had reached over $22,600, having fallen below $19,000 a week earlier. The data from CoinMarketCap show that it then dropped to almost $20,000 yesterday. Numerous crypto analysts anticipate additional declines.
Ethereum (ETH) is on the edge of its pivotal consolidation, a change from verification of work mining to confirmation of stake that will emphatically cut its energy utilization. Ethereum erased some of this year’s losses when it briefly touched $2,000 in the middle of August on optimism regarding the merger. However, Ethereum’s price fell by about 10% yesterday as a result of the CPI announcement, so it was not enough to offset the negative effects of the economic downturn.
The total cryptocurrency market cap fell to $957 billion, down from $1 trillion in the previous few days. We can anticipate that crypto price struggles will continue in light of upcoming economic difficulties.
What exactly is a crypto-winter?
The term crypto winter alludes to a significant stretch of discouraged costs – – similar to a bear market yet for crypto. Although there isn’t a lot of agreement regarding what constitutes winter or when it might end, it is frequently mentioned. The difficulty with cryptocurrencies is that they are assets with a high level of risk, and several projects could fail before the spring.
To be sure, doubters caution that the entire business might in any case implode. Since it’s still a young market, we don’t know much about how it will develop. As a result, managing your risk and only investing money you can afford to lose are essential. Put yourself in a position to take advantage of any gains while avoiding financial ruin if blockchain technology fails to perform as many anticipate.
Is the crypto winter coming to an end?
It shouldn’t come as a surprise that crypto investors are getting sick of the cold after their portfolios have seen their values plummet so far this year. It is unclear when or if many of the top cryptos will recover from their all-time highs, which have seen many of them fall as much as 90%.
Keep in mind that the most recent crypto winter lasted almost three years—from the beginning of 2018 to the end of 2020—and that the macroeconomic conditions that partially triggered the slump don’t seem to be going away, so it could be a while before prices get back on track.
The possibility that the conditions that caused prices to reach all-time highs in 2021 will not occur again presents a challenge. The frenzy was fueled by low-interest rates and COVID-related stimulus payments, and many new investors believed they could not lose. In addition to the fact that household budgets are becoming more constrained and interest rates are rising, increased regulation may also prevent another year of crypto-mania.
Additionally, investor confidence has suffered significantly. Some people have lost their savings as a result of the collapse of the well-known cryptocurrency Terra (LUNA) and other crypto platforms, in addition to the significant price drops. Those anticipating a price rise will probably be let down as we face a recession and an international energy crisis.
However, what matters to long-term investors is how you see crypto evolving in the next ten or even twenty years. It’s an expensive investment. However, there are reasons to be hopeful. Ark Invest, for instance, believes that Bitcoin has the potential to dominate several other industries and the international remittance market. The innovation company projects that BTC could eventually cost $1 million.
Ultimately, some people see prolonged price drops as an opportunity to acquire cryptocurrency at a discount. However, there are no assurances. A lot depends on how you see the industry evolving and how much money you have. It’s possible that prices will continue to fall, and it could be years before they start to rise again.
Many investors are currently in hibernation, even though long-term crypto enthusiasts have survived previous winters. Hunker down, avoid panic selling, and wait for the freeze to break if you still own crypto and believe in its long-term potential.