Main page ยป Why are cryptocurrency rates dropping?

The current cryptocurrency exchange rate is clearly suffering from a downward trend. Moreover, this year’s market situation means that digital currencies have offset the gains made during the 2017 bull market. This situation negatively affects both individual institutions and private investors. What has influenced the current shape of the industry and how to exist in it?

What does the price of cryptocurrencies depend on?

The market situation of cryptocurrencies is mainly dependent on the prevailing interest rates, or the level of inflation. It is also worth mentioning the macroeconomic factors affecting the attitude of people who are considering investing in cryptocurrencies. People observing the weakness of traditional banking institutions are more likely to invest their funds in, for lack of a better word, alternative financial entities.

In the event of sharp price declines in March 2022, the market is put under pressure. Consequently, some investors are forced to release their frozen funds so that they will be able to repay their remaining obligations. Potential pessimism about the future fate of the crypto industry is further fueled by the actions of individual governments and the unfavorable regulations they implement. State entities are acting in this way because of the increased interest in cryptocurrencies – as they increasingly realize the relevance of the technology in areas such as monetary policy, security and the environment.

One of the more glaring examples of countries with aggressive policies toward cryptocurrencies is China. On September 24, 2021, the government there outlawed the ability to make cryptocurrency transfers within the country. Moreover, foreign cryptocurrency exchanges have lost the ability to provide services to Chinese citizens.

On the other hand, we have the United States. President Joe Biden’s 2022 administration has ordered federal agencies to begin working on a strategy for overseeing digital currencies. This action follows this year’s actions by the Federal Reserve, which decided to raise the main interest rate.

What do these situations have in common? They serve as a reminder that the cryptocurrency market is still relatively new. We are still unsure how digital currencies are ultimately able to affect the global economy. In addition, their characteristic feature of high volatility is a double-edged weapon. Random events in the market are capable of both driving prices upward and dragging them all the way down.

Current cryptocurrency rate vs. past declines

Of course, those familiar with the matter that is cryptocurrencies realize that the current market situation is nothing new. Relatively recently, in 2018, bitcoin was worth less than $3500, but after all, a year earlier there was its historic bull market, where it reached a value of around $20,000. To quote Greg King, founder and CEO of Osprey Funds, one of the largest investment firms in the crypto industry: “The dynamic ups and downs of bitcoin can be breathtaking. But it’s long-term observation that puts these movements into perspective.”

What to do when cryptocurrencies lose value?

In a situation where we hear questions like “why is btc falling?” from everywhere, the optimal solution is to try to adapt to the market situation. According to industry experts, the decision to use all spare funds to “cheaply” buy cryptocurrencies should be avoided. Better and safe for the portfolio is to use an investment strategy called dollar-cost averaging that allows reducing the impact of volatility on the purchase of digital currencies (although this method also applies to other assets). Its premise is as follows: the investor purchases equal amounts of cryptocurrencies on a selected cryptocurrency exchange at a regular interval.

In this way, it reduces the risk that the investment will be more sensitive to variables than it could be with a lump sum – that is, a single payment. Depositing funds distributed over time allows the average price of an asset to smooth out. However, the biggest advantage of DCA is considered to be minimizing the risk of entering the market at the wrong time. Even a well-thought-out stock market move will lose all its potential when timing is lacking. However, it should be remembered that proper timing is not a guarantee of investment success.

The current course of cryptocurrencies also prompts us to consider diversifying our portfolio of crypto products. The market offers a multitude of investment options, so it is crucial to make a reconnaissance, after which we will decide whether to buy assets of interest. If one of them loses value, it will be a signal for us to buy. The solution, analogous to the previous one, will allow us to reduce investment risk.

Thank you for reading the article! We encourage you to visit our Kantor blog regularly for the latest news from the world of cryptocurrencies!


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