The Gala Games coin has lost around 18% in value over the week and other digital currencies have suffered a lot. Rising interest rates, in particular, are putting the brakes on investments. As a result, investors need to be wary.
“The cryptocurrencies are in the stranglehold of the interest rate turnaround.”
Crypto Expert Thilo Emden
Cryptocurrencies are one of the forms of investment with the most significant potential returns and the greatest risks. The price of the first and probably best known of them, bitcoin, exploded in 2021 after many ups and downs in previous years. Between the beginning of January and mid-November 2021, it more than doubled to around 68,000 US dollars (more than 60,000 euros). But within less than two months, it has lost almost all of that gain. As of Friday morning, it was at about $36,000. Other cryptocurrencies have fared a little better recently. Some lost as much as a third of their value within 24 hours last weekend. Investors are wondering what to do.
Why are the prices crashing so drastically?
Regarding interest rates going up again, markets are primarily watching the US Fed. They most recently announced three increases in key interest rates. This way, the US government wants to counteract the strong inflation; the rate had risen to seven per cent in the US in December of last year.
Why do rising interest rates hurt crypto prices?
The cryptocurrencies are in the stranglehold of the interest rate turnaround, says crypto expert Thilo Emden. The more frequently and stronger interest rates rise, the more interesting so-called interest-bearing products become for investors. These include government and corporate bonds, for example. As the appeal of such investments grows, the appeal of other assets diminishes – including equities, but even more so, such highly speculative investments as cryptocurrencies.
What are the regulatory plans around the world?
Growing regulation worldwide is also hurting bitcoin’s price by making life difficult for speculators. For example, China most recently banned mining, or new cryptocurrency mining, to limit the horrendous energy consumption. However, mining has not stopped there; it reportedly runs in some places through hydroelectric power plants, whose energy reserves are particularly easy to tap. In Russia, trading is only possible via foreign exchanges; the Americans are working on a stablecoin, a digital currency linked to a “stable” reserve value such as the US dollar or gold. This is intended to reduce the susceptibility to fluctuation in relation to digital currencies such as Bitcoin and Co.
Does more regulation also have advantages for investors?
The more the regulators have the development under control, the less interesting the whole thing is for the gamblers. However, stronger regulation also means more security. And more institutional investors could enter the market, which could ensure rising prices. How will the bitcoin price develop in the near future? Some analysts see now as the time for bargain hunters again. But investors have become more cautious. “Many investors have burned their fingers in the past,” says expert Emden. Prices of $100,000, as some were still predicting in the fall of last year, are currently not in sight.
Should investors buy now?
Because price forecasting is difficult, the market is currently mainly something for gamblers. For everyone else, the old stock market adage applies:
Never Reach Into A Falling Knife.
As long as there are no indications of a significant price increase, you should not buy yet.
The top three cryptocurrencies
Bitcoin
No. 1 among the largest cryptocurrencies by market capitalization. currently remains the oldest cryptocurrency. Its market capitalization is currently around $630 billion.
Ethereum
The number two is currently worth about half as much, valued at $266bn.
Tether
The number three comes to a market capitalization of about 78 billion dollars.
