The most important reasons behind the dramatic drop in cryptocurrency prices!
The crypto market was clearly affected, after Bitcoin fell to the level of $23,000, which it maintained with great difficulty, and the rest of the alternative digital currencies were affected, as usual.
Mounting fears of inflation:
The PCE price index showed that the US inflation rate rose to 5.4% year-on-year in January, up from 5.3% in December.
This increased the core rate of PCE inflation for the first time in four months, to 4.7%.
This number is much higher than the 2% target set by the Federal Reserve for inflation.
The findings lend credence to the hypothesis that the Fed may have to keep interest rates higher for a longer period of time to suppress inflationary pressures.
Core PCE inflation and headline PCE inflation both rose 0.6% month-on-month.
Bitcoin options expiration:
There are about $1.8 billion worth of bitcoin options contracts about to expire, causing fluctuations in the short-term price movement of bitcoin, as the total number of outstanding unresolved crypto derivative contracts has reached 300,000.
These bitcoin contracts allow traders to predict the price of bitcoin by allowing them to buy and sell options called “call” and “put” at a certain price on a certain expiry date.
The historical performance of these contracts is frequently used as indicators of short-term future price movement.
The impact of financial markets:
The Dow Jones Industrial Average fell by 472 points, which equates to a decrease of 1.4%.
In addition, the S&P 500 and the Nasdaq Composite Index both saw declines of 1.6% and 2.0%, respectively.
Companies with exposure to cryptocurrencies, such as Coinbase (COIN), MicroStrategy (MSTR), Robinhood (HOOD) and RIOT (RIOT) have seen their stock values drop sharply as well.
On the other hand, the total market capitalization of the cryptocurrency market decreased by almost 3% from the previous day, bringing it down to $1.06 trillion at the time of writing.
Currently at press time, Bitcoin is trading at $23,090 while Ethereum is down 0.81% over the past hour and down 2.85% over the past 24 hours, and is currently trading at $1,598.