Cryptocurrency prices crash as Fed and Terra UST concerns remain
- Published: 12th May 2022, 14:17
Cryptocurrency prices are in a deep downward trend as investors remained concerned about the overall trend of the Federal Reserve.
They are also falling after the remarkable crash of Terra, one of the biggest coins in the world. Its decline happened as Terra USD, its stablecoin lost its peg.
Most cryptocurrencies have dropped by more than 20% in the past seven days. As a result, the total market cap of all coins have dropped from an all-time high of more than $3 trillion to the current $1.2 trillion.
Bitcoin declined below the important support of $28,000 while Ethereum crashed below the $2,000 level. Other popular coins like XRP, Solana, and Monero have also fallen.
The main concern among investors is that the Federal Reserve has embraced a more hawkish tone than expected. In a statement, Fed officials have hinted that they will continue hiking interest rates at a faster rate than what most were expecting.
Historically, risky assets tend to underperform in a period of high-interest rates. Indeed, risky stocks such as those in the Nasdaq 100 have crashed sharply from their all-time high.
Cryptocurrency prices also declined as investors continued to worry about contagion in the industry. This happened after Terra USD, one of the biggest stablecoin collapsed. Its total market cap declined from more than $20 billion to about $6 billion.
In the past, a collapse of a major asset tends to lead to the weakness of other assets as well. A good example is the collapse of Lehman Brothers and the damage that it caused in the market.
Another reason is that investors are no longer interested in cryptocurrencies as they were before. For example, in its financial results this month, Coinbase said that the number of users in its platform has declined.
Still, analysts believe that cryptocurrency prices will bounce back in the coming months.
Crispus Nyaga is a full-time financial analyst and trader with more than 7 years in the industry. He has been fortunate to work for several fintech companies, mostly from Europe, Asia, and North America. His work is published in leading platforms like Seeking Alpha, Invezz, rkdream.com InvestingCube, Capital.com, and Marketwatch. Crispus operates from a private office in Nairobi.