Bitcoin in fall: understand the devaluation of cryptocurrencies

Bitcoin reached its lowest value in almost 1 year this Tuesday (10). In the partial of the month, the cryptocurrency accumulates a fall of about 15% and has already lost more than half of its value since reaching the historic mark of US$ 69 thousand in November last year.

In the morning, bitcoin dipped below $30,000 to hit $29,764 in its sixth straight trading day. The value represents a loss of 57% of the value in comparison with its historical record.

Falling riskier assets

The price of cryptocurrencies has followed the fall of riskier assets, such as shares and shares of technology companies.

Riskier and equity investments are being affected by the prospect of persistent inflation in the United States , putting pressure on the Federal Reserve to raise interest rates more aggressively.

The Federal Reserve (Fed, the US central bank) raised the basic interest rate to the range between 0.75% and 1% – the highest high in 22 years and the expectation is that further increases will be made in the coming months.

Higher interest rates in the US make investments in US treasuries more profitable, which reduces the demand for riskier assets and encourages the migration of capital to assets considered safer.

The dollar itself has gained strength against other currencies. And with the strengthening of the currency, cryptocurrencies also tend to weaken.

The trend also affects the bonds of technology companies, whose performance benefited from low-interest monetary policies during the pandemic. The Nasdaq index , which brings together companies in the sector, fell 1.5% last week and lost 22% year-to-date.

Low liquidity and signs of weakness in stablecoins

In an interview with Reuters, Matt Dibb, chief operating officer of cryptocurrency platform Stack Funds, pointed to other factors for the weekend’s decline:

  • low liquidity of the cryptocurrency market
  • signs of weakness in stablecoins (digital currencies often backed by traditional money and other assets)

Terra USD (UST), the world’s fourth-largest stablecoin, lost a third of its value on Tuesday as it lost its peg to the dollar.

UST is closely watched by the digital currency community, both because of the new way it maintains its 1:1 peg to the dollar, and because its creators have laid plans to build a $10 billion reserve of bitcoins to support the UST. stablecoin. This means that volatility on the UST could potentially spill over into bitcoin markets.

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