Over the past few weeks, we have witnessed massive falls in the price of bitcoin time and time again. The bear market plays a very important role in this. But recurring rate hikes by central banks are also causing Bitcoin’s price to fall further. What are the reasons why central banks continue to influence bitcoin prices?
How has the price of bitcoin increased lately?
In the last few weeks and months, the bear market has largely determined the price of Bitcoin.In doing so, we saw it fall from an all-time high of over $68,000 in November 2021 to less than $18,000 in June. In the third quarter, bitcoin price recovered somewhat and we saw stabilization around $20,000.
It repeatedly rose above the $22,000 mark, sometimes even as high as $24,000. But we have seen sharp falls in the price of bitcoin over and over again in a short space of time. In general, the decline has slowed, but there is still a risk of further losses.
Why has the price of bitcoin fallen so much?
Losses over the past few months can largely be explained by Bitcoin returning to a bear market early in its cycle. At the end of 2021, Bitcoin saw the end of the bull run and a new all-time high. But by November it was over and the bear market began.
At the start of a bear market, we have historically seen huge losses in the first few months. It happened this time too. Bitcoin’s price has fallen more than 80% from its all-time high in 8 months. But once we knew the bear market had begun, it was to be expected.
However, there were several other factors that reinforced the bearish trend in late 2021 and early 2022.
What caused the bear market to intensify?
The bear market of the last few months has been influenced by a number of factors:
- With the recent outbreak of the Corona pandemic, we saw losses in the markets, which also affected cryptocurrencies.
- There were also heavy casualties in the war in Ukraine.
- Above all, the increase in key interest rates by the central banks and their announcements repeatedly caused losses.
Why are central banks raising interest rates?
Inflation in Western countries has risen sharply in recent months. As a result, the euro and US dollar became less and less valuable and reduced their purchasing power. This development became so worrying that central banks in Europe and especially in the US had to intervene.
The European Union and the United States have pursued strict low interest rate policies in recent years. This should make it easier to invest, borrow and repay, and prevent many companies from going bankrupt on debt. This also caused cryptocurrencies, which represent risky investments, to become more popular, especially among institutional investors.
Now, however, high inflation meant that central banks had to raise interest rates so that “cheap money” could not circulate so easily., Their purpose is to limit inflation. At the same time, however, risky investments are becoming less attractive.
Why does bitcoin fall after a rate hike?
Bitcoin, like all other cryptocurrencies, is considered a risky investment. Higher key interest rates ensure that institutional investors such as banks and funds invest less, especially in the crypto market. As a result, the price of Bitcoin could fall sharply in the short-term, especially ahead of a possible rate hike at a meeting of any of the central banks (Fed, ECB).
The US Federal Reserve, in particular, has successively raised key interest rates in recent months in order to bring inflation in the US under control. This ensured that the selling pressure on Bitcoin increased again and again.
These measures are intended to control inflation in the future and make further increases unnecessary. However, with these increases comes the risk of a market slowdown. Here the price of Bitcoin can either fall further or be considered a security in the medium and long term and the classic asset can also benefit from a decline.