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The Perfect Storm? Here’s Why the Crypto Market is Down Right Now

Bitcoin and the wider cryptocurrency have had a shaky couple of weeks. After bitcoin reached an all-time high of $69,044 on November 10, it has fallen by as much as 22% and now sits at $58,200 at the time of writing. Likewise, the cryptocurrency market’s total cap has sunk from $3 trillion to around $2.57 trillion, a drop of 14.3%.

This is hardly a cataclysmic fall, yet it certainly flies in the face of anyone predicting new ATHs for the end of 2021. And despite intermittent signs of recovery, the cryptocurrency market has continued to flounder, with bitcoin reaching successively lower plateau in each of the past two weeks.

However, this stagnation shouldn’t really be a surprise to anyone watching the news right now, with various regulatory, macroeconomic and political factors all combining to keep bitcoin and the cryptocurrency market down. And what this means is that we can’t reasonably expect a renewed bull market without such factors being cleared, something which may not happen until next year.

Is Bitcoin experiencing a perfect storm of FUD?

A Bearish Environment is Why the Cryptocurrency Market is Falling Right Now

Basically, the cryptocurrency market has entered a decidedly bearish environment. This has been most starkly typified by fears over a new strain of the Sars-CoV-2 virus, which may potentially make the coronavirus pandemic a whole lot worse (yet again).

Stock markets around the world fell pretty much uniformly when the World Health Organization described this new variant as “of concern” on November 26. The Dow Jones suffered its worst drop in a year, for example, while the UK’s FTSE 100 experienced its worst one-day loss since June 2020.

One of the worst losers was the price of crude oil, which fell by 10% for its worst drop since the beginning of the Covid-19 pandemic. Almost needless to say, airline stocks were also particularly affected.

Conversely, US Treasury yields fell on November 26, given that there was a sudden increase in investors clamoring for a less risky store of value.

And given this drop in the market’s appetite for risk, the price of bitcoin and other cryptocurrencies unsurprisingly tumbled. Between 00:00 on November 26 and the same time on November 27, bitcoin fell by 8.6%. The cryptocurrency market’s total cap dropped by 8% in parallel.

What’s important to note about this all is that little is still known about the new coronavirus variant, dubbed Omicron. Health authorities have yet to confirm that it’s more transmissible and more resistant to vaccines, meaning that the market could be in for yet another shock if they do.

As such, bitcoin and cryptocurrencies in general remain highly uncertain, with recoveries being tentative at best.

Cryptocurrency is Taking a Battering from Governments and Regulators

Turning to more crypto-specific news, there are a range of other factors which are also conspiring to keep prices down right now.

Probably the most bearish was last week’s news that the Indian government will indeed seek to ban private cryptocurrencies, meaning pretty much everything bar central bank digital currencies. It outlined its intentions in a parliamentary schedule published on November 23, with the Cryptocurrency and Regulation of Official Digital Currency Bill declaring the following:

“The Bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrencies and its uses.”

This news had a significant effect on cryptocurrency markets in India, with bitcoin falling by more than 13% on Indian crypto-exchange site WazirX. And while its effect wasn’t pronounced elsewhere, it’s likely that increasing talk of regulations in the United States and elsewhere is dampening bullishness more generally.

For instance, US regulators have been ramping up work on introducing stablecoin regulations since at least September, with the Biden administration sharing proposals in a report published in early November. Notably, President Biden also signed a $1 trillion infrastructure bill into law in mid-November, one which will increase tax-reporting requirements for cryptocurrency ‘brokers’ (now defined very broadly) from 2024 onwards.

Combined with the situations in India, China, the EU and elsewhere, such moves are reducing wider interest in cryptocurrencies, at least until their effects and ramifications are more fully understood.

Mt. Gox and Underperformance

The introduction of new legislation speaks to rising uncertainty, as does the approach of Mt. Gox rehabilitation payments. These will potentially see as much as 141,686 BTC (worth about $8 billion) distributed to former customers of the Japan-based exchange, an amount which could depress the bitcoin and cryptocurrency markets if sold at once.

However, this amount of bitcoin will likely not be distributed all at once, and will instead be delivered in phases. As such, it may not have a massive effect on the market, particularly if a significant number of recipients choose to hold their bitcoin for the long-term.

Another issue dragging down the cryptocurrency market is a decline in euphoria and excitement, particularly after BTC reached another all-time high on November 10. In particular, the publication of Coinbase’s financial results served to suggest that the cryptocurrency industry may not be doing as well as hoped in terms of attracting adoption, new users and new investors.

In fact, shares in Coinbase slipped as much as 11% when it published its third-quarter results on November 10. What’s interesting about this is that it’s the very same date when bitcoin and ethereum began falling, having set new all-time highs.

It’s therefore possible that investors may need to see improved Q4 (and future) results before it gets confident enough to really dive into the market again.

Continued Uncertainty

However, it’s possible that we may not see improved results for a while yet. The macroeconomic picture remains highly uncertain, largely because of the ongoing coronavirus pandemic and its effect on the world’s economy.

To take just one more example, inflation is rising in pretty much every developed economy right now, from the US and the UK to Japan and Australia. Many bitcoin and crypto bulls would usually think this is great for them, since inflation — or so they assume — drives people towards cryptocurrency (at least those with a limited supply).

Despite this assumption, serious inflation can reduce the market’s appetite for risk, since it can be taken as an indicator of severe economic troubles, or at least of rate increases. This is what happened — yet again — on November 10, when the US Labor Department issued data showing that annual inflation in the States had reached 6.2% in October, the highest since 1990. The Nasdaq 100 responded to this news by suffering its worst decline in a month.

Again, November 10 marks the very date when the cryptocurrency market began falling away. And without a decline in inflation, a relative stabilization in the global economic picture, and a return of investor appetite for risk, it’s unlikely that the cryptocurrency market will exhibit a significant improvement.

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CryptoVantage Author Simon Chandler

About the Author

Simon Chandler

Simon Chandler is a journalist based in London. He writes about technology, markets and politics, and has bylines for Forbes, Digital Trends, CCN, Wired, TechCrunch, the Verge, the Sun, the New Internationalist, and TruthOut, among many others. His Twitter handle is @_simonchandler_

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