The world’s largest cryptocurrency by market cap, Bitcoin, has now dropped 50% from its peak in November last year. The drop in the value of digital assets comes as stock markets across the world have also fallen in recent days.
On Monday, some Asian markets fell again with Japan’s benchmark Nikkei index down around 2.5%. Bitcoin represents about a third of the cryptocurrency market with a total value of around $640 billion. Ethereum, the second largest cryptocurrency in the world, has also dropped in value, by more than 10% in the last week.
While much of 2022 has been relatively smooth for the cryptocurrency market, volatile trading in digital assets has not been all that uncommon in previous years.
Trading has been dominated for years by individual investors, but more recently the market has seen an influx of professional investors such as hedge funds and money managers. With more traditional investors trading digital assets, cryptocurrencies increasingly follow the movements of global stock markets.
Many of the institutional investors who buy cryptocurrencies treat them as risky assets, similar to technology stocks. In times of market uncertainty, traditional investors often sell what they consider riskier assets and shift their money to safer investments.
Last week, central banks around the world, including the US, UK and Australia, raised interest rates as they tried to fight rising prices. The US Federal Reserve raised its key lending rate by half a percentage point, marking its biggest rate increase in more than 20 years. This has raised further concerns among some investors that inflation and the higher cost of borrowing could have a big impact on global economic growth.
Investors are also concerned about the impact of the war in Ukraine on the world economy. Meanwhile, last year Bitcoin became legal tender in two countries – El Salvador and the Central African Republic. Since El Salvador said it would allow consumers to use cryptocurrency in all transactions along with the US dollar, the International Monetary Fund has asked to reverse its decision.
Translated matter from BBC News.
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