After pumping around 30% at the beginning of September, Bitcoin came crashing back down on September 13th, losing around $1,500 in around 3 minutes. It then plummeted again on 21st September following an announcement by the Federal Reserve.
CPI Data
The reason the price of Bitcoin fell so significantly on September 13th was the release of CPI data which showed that the inflation rate in the US was at 8.3% in August of 2022, above market forecasts of 8.1%. Why would this information cause the price of Bitcoin to drop? Because when your dollars aren’t purchasing as much as they used to you need more of them – hence people cashing in their Bitcoin for dollars and other “risk-off” investments.
Interest rate hikes.
On the 21st September, the Federal Reserve announced that interest rates were being increased 75 basis points (three quarters of a percentage point); which is the fifth increase since March this year; in an attempt to curb inflation.
Put simply, the Fed will increase interest rates when inflation is running high to make the cost of repaying loans higher so they can take more money out of circulation. Less money in circulation means less demand for products and services and consequently a decrease in inflation. That’s the idea anyway.
Buy the hype, sell the news.
The price of Ethereum has also decreased significantly recently, losing nearly 25% following the long-anticipated “merge” on September 15th.
Ethereum’s decline is a classic case of a “buy the hype, sell the news” event. These events occur when there is some much-anticipated news on the horizon which investors take advantage of by buying more and more of an asset to inflate the price before selling at a high when the news comes out to both take profits and buy the asset back at a lower price when other investors panic sell.
Whilst the above are obvious factors that have led to these sell-offs, there are a couple of other potential reasons for the ongoing bear market.
Market manipulation.
Are crypto markets being manipulated? Probably. According to PYMNTS.com, “crypto market manipulation resembles manipulation on traditional exchanges — pump and dumps, wash trading, spoofing, stop hunting and simply spreading false rumours (which can be fairly easy to do in crypto).”
As crypto is relatively unregulated, and due to there being whales in the space that definitely have the ability to swing prices in a meaningful way, it is probable that prices are being kept artificially low so that whales can further add to their holdings at the expense of other investors. Which leads me to my next reason why prices are at a low:
As crypto is relatively unregulated, and due to there being whales in the space that definitely have the ability to swing prices in a meaningful way, it is probable that prices are being kept artificially low so that whales can further add to their holdings at the expense of other investors. Which leads me to my next reason why prices are at a low:
Between November 2020 and November 2021, the price of Bitcoin rose from $13k-$69k. During this time there was a huge influx of new investors into the space, including retail investors that were both new to the space and inexperienced in investing in general.
The hype generated during the bull run caused a new wave of investors including young people enticed by recent technologies such as NFT’s and DeFi.
We must remember that Cryptocurrency is still in its infancy; and when coins, tokens, and other products such as NFT’s become mainstream news (alongside pictures of people with lambo’s purporting to have made millions in the space); it’s easy to see why people would rush into investments without considering all the available information. Heck, I’m guilty of this myself.
What I’ve learned though, and lots of new investors both to the crypt space (and to investing in general) are learning the hard way, is that the worst investment behavior of all is to buy assets when they are sky-rocketing, putting in way more than you can afford to lose and overleveraging, and then panic selling on the way down and losing all your life savings.
Unfortunately, I believe that this combination of experienced whale traders and inexperienced investors alongside macro factors including the ones mentioned above is contributing massively to the ongoing bear market – and will do for some time to come.
About Me
I’m Jamie, 35 years old and living in Australia. I got into cryptocurrency in 2018 shortly before the $20k high and subsequent bear market, and when you could buy 1 ETH for $300 (my first investment). Since then I have dabbled in most things crypto-related: leverage trading, minting and selling NFT’s, ICO’s… I’ve been scammed (several times), attempted various trading strategies (from hodling to 100x’ing a trade) and introduced many people to crypto.