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The total cryptocurrency market cap has fallen below $1 trillion for the first time since January 2021.
crypto in trouble
Crypto investors are rushing for an exit after more widespread economic turmoil.
The crypto market extended losses following Friday’s higher-than-expected Consumer Price Index inflation. Over the weekend, bitcoin was down 17.4%, recording a new yearly low of around $23,911. Ethereum, the second-largest cryptocurrency, did worse, losing 27.3% over the same period.
Despite the Federal Reserve raising interest rates by a total of 75 basis points in 2022, Inflation has not shown any moderation, which is likely to lead to more aggressive rate hikes going forward. By raising rates, the Fed hopes to bring inflation back to acceptable levels by slowing economic growth. However, doing so has a negative impact on riskier assets such as equities and cryptocurrencies.
Since the Fed first committed to raising rates earlier this year, the crypto market has been valued at over $800 billion. In March, the sector’s total market capitalization stood at around $1.8 trillion; Now, data from CoinMarketCap shows the asset class’s value has fallen below $1 trillion for the first time since January 2021.
Bitcoin has historically outperformed other crypto assets during bearish market conditions, this time is no different. Over the past month, bitcoin’s market dominance has risen by over 6%, indicating that investors are fleeing the smaller and more volatile cryptocurrency in favor of bitcoin.
Elsewhere, the tech stock-heavy NASDAQ 100 has also been hit hard, with the index’s futures contracts down 3.1% in early-hours trading. In recent months, the crypto asset has expressed a high correlation with traditional equities. On-going weakness in the NASDAQ 100 and S&P 500 could put additional pressure on the already ailing crypto market.
While macroeconomic factors continue to weigh on the crypto market, sector-specific issues are also fueling the bearish sentiment. Earlier today, crypto lending platform Celsius announced that it had halted customer withdrawals, swaps and transfers due to “extreme market conditions”. The development comes after weeks of rumors that the crypto lender may be facing bankruptcy issues due to the fall in the crypto market.
Disclosure: At the time of writing this article, the author owned ETH and several other cryptocurrencies.