Why is the cryptocurrency market falling? 

 

As concerns of Evergrande collapse having a ripple effect on markets resurfaced, Bitcoin and Ethereum fell below $48,000 and $4,100 respectively in the past 12 hours. Following the two largest virtual tokens, the market cap of broader crypto market dipped by 4.2 per cent at $2.27 trillion, over the past 24 hours.  

Evergrande Group, China’s developer, was downgraded to "restricted default" on Thursday by rating agency Fitch due to non-payment of offshore bond dues. According to Reuters report, failure by Evergrande to make $82.5 million in interest payments due last month would trigger cross-default on its roughly $19 billion of international bonds and put the developer at risk of becoming China's biggest defaulter – a possibility looming over the world's second-largest economy for months. 

Apart from Evergrande, other factors such as uncertainty created due to new COVID-19 variant Omicron and fears of further Fed tapering leading to liquidity pull back have also contributed to the downturn in the crypto market. To give you an idea in the past 7 days Bitcoin prices, the largest and oldest cryptocurrency that determines the course of the broader market, is down by 15 per cent trading at $48,207. Similarly, Ethereum, the second-largest virtual token, is down by 9 per cent and is currently trading at $4,122.   

CoinDCX Research Team states that despite the store of value properties which many associate with crypto, yesterday’s sell-off was clear indication that crypto is still being traded largely as risk assets.  

“Not all was bleak and gloomy though — ‘dinosaur’ coins like $XRP and $LTC are starting to show signs of revival, with $XRP notably breaking out of its 4-month downtrend on the BTC pair. While it remains to be seen what the end of year price action would be like, with the overall market sentiment remaining shaky, we might be in for a dismal Christmas this 2021,” CoinDCX Research Team stated. 

“Crypto prices are influenced by a multitude of factors including global economic circumstances and crypto markets. A few factors specific to crypto markets include demand and supply, cost of production (mining) of a particular asset, exchange listings, software/governance updates in blockchains, regulatory and legal updates affecting market sentiments, etc,” said Minal Thukral, EVP-Growth & Strategy, at CoinDCX. 

Also Read: Bill on cryptocurrencies on anvil, set to go to Cabinet shortly, says FM Sitharaman

Also Read: Bitcoin is trading at attractive prices in India; here’s why

Talking to Business Today, Vikas Ahuja, member of the nascent crypto industry body Blockchain and Crypto Assets Council (BACC), and CEO, CrossTower India, argues that multiple factors are at play contributing to the fluctuating prices of cryptocurrencies.

"Given the developments surrounding the Crypto Bill in India, it led to a fluctuation in cryptocurrency prices in Indian exchanges but was only for a few hours. In addition, the new variant of the Coronavirus known as Omnicron is roiling global markets, with its impact being felt across various markets, including those trading cryptocurrencies,” he said.

 Similarly, Ashish Singhal, founder and CEO of crypto exchange CoinSwitch Kuber, points out that a range of macroeconomic factors are leading to crypto price movements.

"Various new projects also impact pricing of specific crypto assets.  Our user base is dominated by retail investors. With news of a broader understanding of how the proposed crypto bill in India shall focus on investor protection and ensure financial system stability is reinforced, we are seeing positive interest among crypto enthusiasts." he said.