The most valuable digital currency in the world, Bitcoin, fell more than 5% on May 8, 2023, as investors awaited the publication of the most recent United States inflation statistics. The decline surprised many cryptocurrency traders/observers because Bitcoin had just hit a 10-month high in April when it surged beyond $30,000.
At the time of writing, CoinGecko reported that the price of one bitcoin was $27,408. This represents a substantial decline from its most recent peak and has many investors doubting the once progressive future of cryptocurrencies.
The market for cryptocurrencies as a whole saw a price decline matched by the price decrease of Bitcoin, with all of the leading digital currencies suffering large losses during the past day. For instance, Dogecoin fell 7% in a day to $0.07, whereas Polygon lost 8.6% and was trading at $0.89.
This decline in the price of Bitcoin happened even before the publication of the most recent Consumer Price Index (CPI) report. Investors pay close attention to the CPI, a measure of inflation that shows how much prices rise over time. Since inflation is a major factor in interest rates, it significantly affects the economy as a whole.
Value of the BTC At Risk, As Industry Looks for An Effective Remedy
Experts believe that the value of cryptocurrencies may be negatively impacted if monetary policy is tightened in response to growing inflation, which many investors fear may happen. This development has continued to worry industry stakeholders and Bitcoin enthusiasts, given that some view Bitcoins as an inflation hedge. A crackdown on virtual currencies in China is also accused of the recent decline in bitcoin values.
In a recent statement, the United States central bank restricted financial institutions from trading in cryptocurrency, citing worries about financial stability and the possibility of illicit activity. Some investors are alarmed by this action because they think other countries may restrict the usage of digital currencies in the same way that China has.
Many think cryptocurrencies will eventually gain more acceptance as a form of payment and have the power to transform the financial industry. At this time, doubts are starting to build up, especially about the future of cryptocurrencies. It is still being determined whether digital currencies will survive the storm with increased inflation and regulatory pressure. The value of Bitcoin and other popular cryptocurrencies recently fell significantly, with Bitcoin declining by more than 5%.
Warning By Industry Players Recalled Even Amid Trader’s Optimism
Other digital currencies, like Dogecoin and Polygon, which both suffered losses over the past 24 hours, made the ugly trend even more visible. Concerns over growing inflation and China’s crackdown on virtual currencies are two reasons cited for the decline in bitcoin values.
The short-term picture is uncertain because of regulatory and inflationary pressures that will likely continue to affect the market. Investigation into the reason behind this development reveals that the United States Federal Reserve’s decision to increase the interest rate is the major contributing factor.
It was learned that the increase by the Feds was the highest since 2000. The organization claims that the reason behind their actions was the need to strengthen the United States monetary policy, considering the COVID-19 $2 trillion stimulus package released a few years back. It was also revealed that action by Feds has led to a massive drop in stocks globally, which has extended its plague to major cryptocurrencies like Bitcoin.
Recall that sometime in April, an analytical report from Goldman Sachs was popular for calling out Fed’s monetary policies, referring to it as “harsh,” warned that the measure may likely push the economy to recession. The report has also said that the investors have every reason to be worried.
While speaking on this development, Alex Kuptsikevich, the senior Financial Analyst with FxPro, was quoted saying that “since it draws the attention of experienced investors, the correlation disconnect between bitcoins and stock markets is generally excellent news over the long term.” Meanwhile, even as the price of BTC remains discouraging, investors have remained optimistic that it will bounce with a more promising trend.