Deadly weeks that have sunk cryptomens. These are the main reasons why they fell

Cryptomen investors will not have a fond memory of the last week. We have witnessed historical and drastic raids, which are not so common even in the cryptocurrency market. I will therefore describe the two main factors behind the negative market situation.

Bitcoin is now an integral part of classic markets. The biggest cryptocurrencies, together with others, therefore quite often react to the situation in the world and on the stock markets, which has not happened much in the past.

Central banks are tightening rules, the world is moving inflation

The whole world is currently struggling with very high inflation caused by the ongoing COVID-19 pandemic, as well as the ongoing Russian invasion of Ukraine. Of course, the largest central banks are responding to this, with the US Fed being the most important in terms of world markets.

Last week, it announced a record increase in interest rates of 0.50%, which is the highest increase in interest in 20 years. Of course, classic markets do not carry such a message very well.

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At the same time, the Fed announced that it would start withdrawing money “pumped up” to release the economy and support the recovery from the pandemic, namely $ 45 billion a month, while after 3 months the volume will increase to 95 billion a month. This program is called ,,quantitative tightening“ie quantitative tightening.

When we talk about quantitative easing, it is a situation where the Fed “pushes” money out of the air and puts it into circulation, so to speak. Quantitative tightening is the opposite and the Fed is withdrawing money from circulation, which of course is not positive for the markets at all, and for this reason, after last week’s announcement of these measures, the stock and cryptomen markets began to fall sharply. By tightening monetary policy, central banks are trying to reduce inflation, which is currently reaching record levels in many countries, including Slovakia.

It is the results of inflation that can very often confuse the market, especially at a time when it is expected to rise or fall sharply. This week was marked by the announcement of inflation results from the US, which was important for several reasons.

Inflation has been record for a long time and central banks have already begun to respond to this situation, with markets also falling sharply. We are currently at a crucial stage in this process, as some analysts already expect inflation to stop rising.

We see the results of the change in inflation every month, and in addition to the year-on-year increase, we also see a month-on-month increase, which should now start to slow down, which analysts also expected.

The problem, however, was that the results came in worse than expected. Inflation was higher, which sent very negative news to the markets and caused them to fall sharply. Such numbers mean that central banks will probably have to tighten up even more in their monetary policy, which does nothing good for the markets in the coming period.

Both of the factors I described above are of economic origin and, at first glance, have nothing to do with cryptocurrencies. However, I would like to remind you that bitcoin has been a part of classic markets for a long time and responds to such reports in a very similar way to stocks and indices. At present, panic is not only with cryptocurrencies, but also with stocks. It is worth mentioning, for example, the decline in shares of Netflix, which in connection with poor quarterly results of the company fell by 75% from its maximum. So there is a bad mood on both stocks and cryptocurrencies.

The author is an external professional contributor of the FonTech.sk portal

This article, opinions and information contained herein are for informational purposes only and should not be construed as investment advice. Any content on the FonTech.sk portal does not serve as investment advice and we recommend every reader to consider the risk of financial loss before trading on the stock exchange.