Top Crypto News: Why is the Crypto Market Crashing Today?

The crypto market has been on a journey that has mostly been bearish since the beginning of 2022. However, the crypto market crashed after the Terra LUNA crash took place in May. Moving on from the Terra incident, there has been a lot of other reasons as well, that cumulated the reasons why the market crashed.

Some of the reasons for the crypto crash are: 

1. QUANTITATIVE TIGHTENING

Quantitative tightening (QT) is a contractionary monetary policy tool applied by central banks to decrease the amount of liquidity or money supply in the economy. During the initial phases of Covid-19 – when governments across the world were printing billions and billions of dollars worth of cash and pumping it into the economy in an effort to prop the economy up during a time of crisis when all businesses had to be shut down.

2. EXCESSIVELY HIGH VALUATIONS

During a bull run, valuations also tend to skyrocket beyond reasonable measures at a given point in time. But such excessively high valuations don’t tend to last long and a price correction is almost always inevitable in any asset class, including cryptos. So the current crypto crash also as a little bit of value correction happening behind the scenes.

3. POOR INVESTOR SENTIMENTS

Another reason behind bear runs in the market are poor investor sentiments. Investors looking at losses over 70-80%, even near 100% on their books will surely have troubles re-entering the market again. Confidence tends to be on the down-low during these phases, and understandably so. Thus following basic market dynamics, poor sentiment leads to poor demand which then leads to lower demand and thus value erosion in assets.

Additional Read: Bear Market Indicators

Crypto Crash Update: Are We Still In A Bear Market?

The crypto staples, Bitcoin and Ethereum crashed below their previously surged prices at the time of writing. Bitcoin Price crashed below $19000 which is even lower than its previously $20k resistance level. 

Moving on to the widely talked about Ethereum Network, which recently completed its highly anticipated Merge, where the network transitioned from its previously Proof of Work consensus mechanism to a much more energy efficient Proof of Stake consensus. This major change within the ETH ecosystem was anticipated by many crypto enthusiasts to result in a surge in ETH price. However, the price of Ethereum crashed and is currently running below its $1500 mark at $1200 levels. 

The whole of the crypto market crashed by a total of 3% in the last 24 hours and is well below its $1 trillion mark, as reported by CoinGape news. The reason for this continuous fall can be attributed to Fed’s actions toward increasing its interest rates or bps as a means for its hawkish stance at battling inflation. 

Interest Rates and Crypto Crash 

Ever since the massive adoption of the crypto asset by the Indian masses, the crypto market has increasingly started to correlate to the general market. The crypto market, since then has started to behave very similar to any other assets like tech stocks and the tech-oriented NASDAQ. As a result of that, macroeconomic conditions play a major role in the crypto market. In June 2022, when the Fed raised the interest rate by an unprecedented 75 bps, the crypto market crashed a major liquidity crisis as a result of that.

According to Bloomberg’s survey, the Fed will raise the interest rates above 4% or 400 bps by the end of this year. The current target rate is 225-250 bps. To reach 400 bps, the Fed will need two successive jumbo hikes of 75 bps. The market is also pricing in the possibility of a 100 bps hike. 

According to CoinGape news, the survey is very much in line with the statements made by key Fed officials. Cleveland Fed President Loretta Mester highlighted the need to raise interest rates above 4%. According to economists, a pivot from the Fed is not likely before 2024. The Fed’s aggressive stance will not be helped by the fact that the Consumer Price Index for August shows worse-than-expected inflation.

Consumer Price Index: Often referred to as CPI, it is a key index that measures price change over a period of time. The data measures the increase or decrease in the price paid by the consumers on a monthly basis.

Source: CoinGape

CRYPTO CRASH: THE INDIAN SCENARIO

The Indian experience of the crypto crash is slightly different from the rest of the world, Primarily because of the fact that we are now living in the reality of a 30% tax on crypto gains and a crippling 1% TDS on crypto sale transactions. And top that off with no off-setting of crypto losses against crypto gains, or any other gains for that matter.

And undoubtedly, such tax practices have dampened the mood of Indian crypto investors – which could soon be one of the largest markets out there.

The highest tax slab of 30% tax became applicable from the 1st of April, 2022, while the 1% TDS came into effect on 1 July, 2022.