The cryptocurrency market has witnessed significant declines during the past week, reaching levels not seen in months. On Monday, Bitcoin fell below $33,000 for the first time since July, and the entire crypto market lost more than $1 trillion in value.
Nick Casares, head of product at PolyientX, a platform for projects using nonfungible tokens, stated that the crypto landscape was first separated from the conventional economy, but this has changed rapidly.
A nonfungible token, or NFT, is essentially a piece of data that certifies you possess a digital asset, such as a collection of artwork or a clip of an NBA game-winning shot.
Bitcoin and Ethereum are among the cryptocurrencies whose value is declining due to investor unease.
"This time around, we've seen a significant increase in retail investment," Casares continues. "Institutional money has also poured into the cryptocurrency market in a significant amount. And when this occurs, traditional markets and the crypto market tend to get coupled."
Retail investors are nonprofessional investors that trade with their own funds, whereas institutional investors are frequently large corporations that trade with the funds of others.
In other words, given the rise of retail and institutional investors, what transpires in traditional markets is likely to impact cryptocurrency markets as well.
Through apps such as Robinhood and Square, retail investors have easier access to cryptocurrencies, and they are more likely to liquidate their holdings in the face of uncertainty, according to Casares.
Indeed, the past week has been tumultuous.
Wednesday's Federal Reserve meeting was intended to evaluate whether or not a rate hike would be implemented to combat growing inflation and labor shortages.
"Everyone in the marketplace was anxious and speculating on what may occur. Consequently, I believe that interest rate discussions and a growing inflation rate are impacting all asset classes "Casares said.
Fed Chair Jerome Powell's statement on Wednesday revealed a plan to begin raising interest rates "soon" as the central bank works to combat inflation, resulting in a decline in stocks and an increase in Treasury yields.
The CEO of the cryptocurrency trading company Voyager, Steve Ehrlich, argues that the crypto market crash may have originated in the IT industry.
"What we're witnessing is a general risk-off in the technology sector and a concomitant sell-off in Bitcoin and crypto assets," adds Ehrlich. Bitcoin is currently highly associated with the technology industry via coincidence.
The 6,000-participant Crypto Confidence Survey by Voyager reveals that 87% of crypto owners want to hold their bitcoin for the medium or long term. According to Ehrlich, this recent price decline is merely a speed bump for the vast majority of cryptocurrency owners.