The cryptocurrency market lost more than $500 billion in total market capitalization earlier on Friday. The market carnage resulted in more than $700 million worth of liquidations as the cryptocurrency bled profusely. Bitcoin (BTC) fell below the $40K support while Ether (ETH) also lost the $3K support.
As cryptocurrency proponents debate whether the cryptocurrency market has entered a slump, a host of wild theories have emerged on the internet to explain the crash. We will look at three such theories that many believe led to the crash of the crypto market.
US Federal Reserve inflation target:
US consumer inflation is at an all-time high and the Federal Open Market Committee (FOMC) meeting is scheduled for 25-26. January is expected to announce new interest rates. The Fed is expected to raise interest rates three times this year, rising from 0.25% to 1% by the end of the year. Many market experts believe that rising concerns about inflation, adding to the growth of omicrons, led to a selloff on Wall Street that eventually crept into the cryptocurrency market.
Reddit theory suggests that the cryptocurrency was created to hide asset inflation when it created another “pipeline” through which the US dollar would pass to inflate another asset. User Juicyjuicejuic wrote:
“Cryptocurrency creates an ideal trading vehicle for a short period of time before becoming a scapegoat for any crash.”
The user added that the volatility of the cryptocurrency market was the reason “because everyone was playing cryptocurrency and taking money from other assets for this!”
The growing correlation between the Bitcoin market and Wall Street
Market experts also believe that the increased correlation between Bitcoin and the stock market may soon lead to a crash. Thanks to ETFs and institutional investors, BTC is becoming more relevant to the stock markets. The cryptocurrency market fluctuated in line with Wall Street.
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The Central Bank of the Russian Federation proposes to ban cryptocurrency
Another theory that appears to be gaining traction is a recent report by the Russian Central Bank calling for a blanket ban on mining and cryptocurrency trading. As Cointelegraph reported, the Russian Central Bank compared bitcoin to a hierarchical system and called for an immediate ban on domestic use. The central bank also warned that the cryptocurrency could pose a threat to the country’s economic sovereignty.
Russia has become the third largest bitcoin mining hub, and many believe that the central bank’s request for a blanket ban has sparked research and development in the market, as in May 2021, which led to sales.
The first major crash of 2022 resulted in a drop in sales in the cryptocurrency market, but seasoned traders continue to advocate manipulation as they argue that a crash of up to 30% is not a cause for concern in the beef market.