Crypto correction is happening – why are the cryptos DOWN?
The last few months have not been easy for the crypto market. However, crypto prices managed to rebound. After falling well over 50% below the $1000 mark, Ethereum was able to rise by an incredible 40% in the last 30 days. Most cryptocurrencies also managed to rise thanks to renewed purchasing power in the crypto market. However, over the past 2 days we have noticed a slight downward crypto correction. Is now the time to buy crypto at cheaper prices, or could this mini-rally simply be a “bull trap”?
The crypto market has been DOWN for the past 24 hours
After reaching a market cap of $1 trillion again, the crypto market started to go a little lower. Its market capitalization fell to today’s $992 billion, or a drop of -1%. Most cryptos also saw a significant drop in their market capitalization. This comes after a longer rise since last week. Prices must always adjust lower before continuing higher. This is mostly due to profit taking, which in turn gives power to the sales side. If you have just opened a position, this is not a concern yet. Traders must ensure not to use tight stop loss in this specific case.
Why did the crypto correction happen?
In order to assess whether the current recovery phase is lasting or just a bear market rally, the reasons why the markets are currently selling off must first be shown. In addition to persistently high inflation, the subsequent rise in interest rates is toxic to the economy. Rising interest rates not only make the valuation of riskier assets such as cryptocurrencies or technology stocks unattractive, but they also ensure that the money supply in the market grows more slowly. This makes money more expensive (supply-demand), which can lead to deflationary tendencies. Wall Street is therefore particularly afraid of mistakes made by the FED in interest rate policy.
In addition, there are fears that the general economic situation could lead to recession. Inflation, rising interest rates, broken supply chains, shortages of raw materials and the war in Ukraine. There are plenty of reasons for a recession. Due to the FED’s aggressive interest rate policy, it is even suspected that the US central bank would deliberately send the US economy into a recession in order to control inflation.
Why are the markets turning now?
A definite recovery has been observed in the crypto and stock markets for several months now. In particular, sold-out cryptocurrencies could increase their value significantly again. However, it is difficult to find reasons for this.
Cryptocurrencies are benefiting from the resurgence of the stock market, which has also risen in recent weeks. This is due to more stable economic indicators than expected. Above all, however, recent price developments can be traced back to the investment philosophy that Warren Buffett once created. “Buy when the guns roar”. This does not necessarily mean the Russian war of aggression, but the general pessimistic mood. Investors are currently more pessimistic than during the Corona crash. Many are now of the opinion that nothing more can happen and are building up positions again. The resulting price increase then lures less risk-averse investors back into the market.
In addition, it appears that risks such as interest rate policy and the coming recession have already been priced in. Investors now expect a recession desired by the Fed, which should curb inflation.
What risks are still in the market?
Despite the fresh mood, there are still enormous risks in the market. Inflation, interest rate hikes, aggressive war, supply bottlenecks and the like are now priced in, but the resulting risk and extent of recession is difficult to predict. It is also currently unclear how long the inflation will last. In addition, the risk for the eurozone is currently hardly played out in the markets. Higher interest rates and inflation are currently causing major difficulties in southern Europe. The associated government crisis in Italy could weigh on Europe and the euro for years to come.
Should I Buy Cryptos Now?
Despite some risk, positions can now slowly be rebuilt. This means that the cost-average effect can be utilized optimally, especially through savings plans. Although not all risks are priced into the market, the opportunities currently outweigh the risks. While prices fell, work continued on the crypto projects in question and progress was made. The investment case for most cryptos is the same as before the crash – albeit at a cheaper price. If you want to profit from cryptocurrencies in the long term, you can now start entering the market in tranches.
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