The Bitcoin plunge has dragged down the vast majority of cryptocurrencies. Why has this happened?
Is Bitcoin's plunge just a temporary decline? Here we explain three causes behind the collapse of the world's most widely used cryptocurrency.
Just a year ago, Bitcoin surpassed $60,000 and many predicted it could reach $100,000. Twelve months later, many are now fearing that Bitcoin will fall well below $20,000. The wave of massive Bitcoin sell-offs, the gloomy global economic outlook and rising annual inflation in the U.S. and Europe have been the main causes of this plunge. Fear in the market continues to grow, so it is likely that the price of this cryptocurrency will continue to fall.
Inflation has not only affected the United States. Europe had an inflation of 8.1%, its highest figure in almost four decades. Faced with this, the European Commission stated that it will raise interest rates, as previously done by the Treasury Department. Investors responded with fear to these announcements and began desperately selling many of the funds they held in cryptocurrencies.
Crypto market in "extreme fear" phase
Fear has also reached the whales-the largest investors in cryptocurrencies-who have joined the spiral of massive Bitcoin sales. This has generated a domino effect. However, other major whales, such as MicroStrategy, have assured that they are confident of a Bitcoin rally.
Given the complicated scenario, two major exchanges, such as Binance and Celsius, temporarily halted Bitcoin withdrawals. This measure has increased distrust among users, who fear for the fate of their funds.
According to the Fear and Greed Index, we are at a time of "extreme fear", on a scale of 11 out of 50. Despite such pessimistic news, there are more than a few experts who believe that it is key not to make impulsive decisions. More than a few cryptocurrency enthusiasts are sticking to their "hold" strategy. This means that they opt to buy more cryptocurrencies to keep them in their digital wallets, waiting for Bitcoin's upward movement to return.
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