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- The crypto market crashed over 80% from their peak in just 6 to 8 months indicating the outspread of a bear market
- Bitcoin price is trading within an extended consolidation phase between $21,500 and $19,500 for more than a month.
- The crypto markets appear to be under the control of the bears.
Crypto Market Overview
The global crypto market cap amid the 2021 bull run had surged high to reach the peak of close to $3 trillion during Q4 2021 from the bottoms close to $1.2 trillion. However, since the beginning of April’s trade, the market cap has crashed heavily, maintaining a steep descending trend until it plunged below $1 trillion.
No doubt, constant attempts are made to regain the levels above $1 trillion but fail each time it rises above $950 billion. Currently, no possibility of a flip or rebound is witnessed, while the market cap could remain consolidated until it surpasses $1 trillion.
Additional Read: What are Crypto Bear Markets?
What are the Reasons for the Crypto Crash?
- The crypto space gained huge attention during the 2021 bull run that attracted strong hands from all industries. However, the massive adoption also bought the crypto space under the regulatory radar. Since then Bitcoin maintained descending consolidation while altcoins underperformed more than BTC
- Another probable reason for the crypto crash may be the rise in the Customer Price Index(CPI) which is the highest inflation since 1981. Not only crypto but the global financial markets have also been hit severely.
- The increasing strength in the US dollar is one of the main reasons for the sideway trend of the crypto markets, which has negatively impacted the stock markets and cryptos in turn.
- In an attempt to calm the rising inflation, the FED raised the interest rates which is a recession indicator, inducing uncertainty among the traders, who opted out of the markets to secure their capital
- Coming to the crypto-space, the investors are taking too much leverage hampering the volatility in the near term.
- The lack of liquidity within the markets is also a major reason for the crypto crash as the investors are unable to liquidate their large positions
- Since the beginning of the year 2022, the crypto markets witnessed multiple security breaches which have shaken up the masses
- One of the major reasons for this crypto crash is the influencers manipulating the prices with their mentions which is only for a short time frame.
1. Terra-LUNA Crash
The crypto markets were facing tough times ever since the beginning of 2022, which was intensified with the USTC(UST then) de-peg event that in turn crashed LUNC(LUNA then) price. The asset dropped from a 3-digit figure to as low as holding three zeros after the decimal in its value. This event shook the entire crypto space which began the domino effect impacting the other platforms.
Read more on LUNA Crypto Crash
2. Crypto Lender Celcius Network Collapse
It came as a huge shock for the crypto enthusiasts when Celcius Network halted the deposits and withdrawals citing the shaky market conditions. To everyone’s surprise, the platform still halts deposits and withdrawals and has lowered the WBTC exchange rate to as low as $2700. Many believe the platform to have become illiquid which was initiated with the LUNA crash and fueled by the current bear market.
Read more on What Happened to Celsuis Network?
3. Interest Rate Hike
It is a known fact that the inflation rates have been soaring high since the beginning of the year and the FED has been struggling to cope with the same. Just before the recent increase of 200 basis points, FED had increased 50 basis points. However, with the recent increase, the inflation rates surged beyond 8.6%, the highest in the last 40 years. This has curbed the investors’ investing capacity and volume of let.
4. Global Markets in Bear
With the US inflation rates touching the skies, the global markets are experiencing a significant drop. The US stock markets have also plunged heavily since the beginning of 2022 along with the Asian markets. The commodities like Gold, Copper, Crude Oil, etc have negligible variation, whereas the US dollar’s strength is surging every new day.
Mainly due to the multiple external factors primarily led by the uncertain conditions due to the ongoing Russia-Ukraine tussle, the global markets continue to be uncertain for an extended period.
Additional Read: Crypto Bear Market Survival Guide
5. Indian Crypto Market in Bear
The Finance Minister of India, Nirmala Sitaraman during the Budget Session 2022 announced a hefty tax policy for digital currencies. According to the new policy, for every buy or sell, a tax of 30% on the profit is being introduced along with the other conditions. This has hampered the crypto activities in the sub-continent which witnessed a huge spike in adoption during the Covid-crisis.
Most of the platforms witnessed a huge decline in the trading volumes within a day of the implementation of the new policy. The crypto exchanges in India appear to be calm and have not activated the Panic button. But despite the current bear market, the platforms intend to be cautious.
6. 1% TDS on Crypto Impact
The 1% TDS implemented by the Indian Government has become ‘A curse in disguise for the Indian crypto community‘. For any buy order or sell order, or opening or closing of any positions, 1% is charged as TDS. After the implementation on July 01, most of the exchanges witnessed a steep drop in the volume of more than 70%.
This 1% TDS is expected to kill the crypto industry slowly in the country as this tax provision could be highly detrimental. The government here fails to realize that this TDS may keep the liquidity away from the market as investors tend to rotate their capital now and then. A normal intraday trader tends to trade a minimum of 10 times a day while the other traders tend to trade nearly 20 times a month.
Therefore, the Government has to reconsider the 1% TDS and revise it accordingly.
Read more on 1% TDS on Crypto
Indian Crypto Investor on 30% Crypto Tax
After the new policy came into effect, the Indian crypto community began living with new rules and regulations. Despite the huge shell off of trading volume and liquidity, the industry hopes for many better things to come. No doubt, the investors do not seem to be happy with the tax-induced, but many now wish to become long-term holders.
On the other hand, a shift from centralized exchange to decentralized exchange can be witnessed. While some of them have jumped into passive earnings in staking like where-in the traders allow their assets to be utilized for validating blockchain by the exchanges and in turn earn huge interest.
Conversely, many platforms still refuse to state the currently recorded plunge may be completely due to the 1% TDS. While CoinDCX is focusing on building TDS-friendly products, similar views have been mirrored by other platforms as well.
Read more on 30% Crypto Tax
Crypto Crash Affect Bitcoin Price
- Bitcoin price is heavily impacted by the current bearish trend as the asset has lost more than 70% of its value over the past 6 to 8 months
- Moreover, since the beginning of Q3 2022, the BTC price volatility has dropped significantly which is compelling the price to hover within the range-bound levels
- The RSI dropped to the lower support and consolidated along the same levels, failing to slice through the middle bands, indicating the choppy trade to prevail
- However, it is believed that the bottoms of the current bear cycle are adjacent and hence till then the BTC price may trade sideways.
How has the Crypto Crash Affected Bitcoin
The crypto market crash along with impacting the BTC price has largely impacted the asset fundamentally too. The daily active address has fallen miserably since the May 2021 crash, while the exchange inflow and outflow have also increased notably.
On the other hand, Bitcoin dominance continues to drop significantly after hitting highs above 45. Interestingly, the altcoin dominance has also dropped which signifies the impact of the current crypto bear market. However, the stablecoin dominance is strengthening a bit indicating the traders are uncertain about the crypto asset rally.
Why is this Crypto Crash Different?
Crypto crash have been witnessed a couple of times before in the 12-year-old Bitcoin history. The market collapsed previously in 2015 and 2018 before the current crash. However, the current crash is a little more diverse than before as the industry has gained immense attention from the outside world.
The 2018 crash went on for a year until the end of the year and consolidated for another year until it reached the bottom in March 2020. However, currently, the BTC active & total addresses are still on the upper hand. Moreover, the traders are pretty hopeful of a strong rebound in the upcoming months.
Additionally, many veterans who have witnessed the bear markets before, are pretty confident of a recovery in the upcoming days.
Will the Crypto Market Recover?
Will the Crypto market rise again? This is probably the biggest question running through every mind-of-let.
The markets despite the severe crypto crash and plunges show some potential for a strong rebound. Assets like Bitcoin, and Ethereum have sustained crashes a couple of times before, displaying their core strength.
Therefore, the crypto markets have recovered significantly each time and also smashed new ATH further. Therefore, the current bear markets are also expected to ease very soon, enabling the asset to recover significantly.
Is it Still Safe to Invest in Crypto?
Investing in any of the investment options does require a thorough study and analysis. It would not be wrong to say that investments are bound with risks and the traders who are willing to take risks, enter to make good profits. Bitcoin being the most recognized crypto may be the better option among all the other assets.
The current bearish phase is just short-lived, beyond which a bull run is awaiting. Therefore, investing in fundamentally strong cryptos has always resulted in a better deal. Download CoinDCX crypto app to safely invest in bitcoin and other cryptos in India.Moreover, with Crypto SIPs you can invest in easy weekly installments and take the advantage of rupee cost averaging.
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