(Newswire.net — May 26, 2022) — Things happen quickly in the crypto sphere. The price of a coin can go up to 68,000 USD or above from below 100 in a matter of a couple of years (the case of Bitcoin). Even faster, the price of one stable coin (Luna) can drop from above $120 to a few cents in a matter of a few days. What goes up quickly can come down just as quickly. This is the lesson that many crypto traders have had to learn the hard way in 2022.
Given the current environment, short positions are currently preferred to long positions in crypto. To be able to trade cryptocurrencies in both directions, you need a reliable broker like INFINOX who can provide you with the technical capabilities and expertise needed to make better decisions. We will explore why crypto assets are falling and the reasons for the bearish preference.
Predictions that Bitcoin has been a bubble are gaining more credibility
Several senior analysts have said that Bitcoin and other cryptocurrencies do not have any intrinsic value. This has been the position of major financial institutions around the world. Despite this, those institutions supported their clients with transactions in cryptocurrencies to maintain solid client relationships. But eventually, the prices of cryptocurrencies seem to confirm what those analysts have long predicted.
Economists like Nouriel Roubini and Krugman have expressed their pessimism about crypto. Traders did not heed their advice because cryptocurrencies were still the hot assets in town. Now that the speculative sentiment has subsided, and the prices of crypto assets are falling, people are beginning to recall what those economists have said.
Stable coins do not live up to their reputation
Several stable cryptocurrencies have lost a lot of value recently. TerraUSD is no longer equal in value to 1 USD as is advertised and is trading below 70 cents per Unit. More dramatic was the fall of Luna, a hot cryptocurrency that turned out to be not so stable after all. Traders, many of them junior, have lost a lot of their savings after betting on it.
Those recent developments have shown the light on the lack of trust that is prevalent in the cryptocurrency domain, and the extent of fraud that can take place. Tether, another stable cryptocurrency, was able to maintain its peg to the dollar at 1 USD per unit despite large requests for withdrawal amounting to $3 billion.
Where will crypto go from here?
The current investment environment is characterized by a poor appetite for risk. Shares in many countries are struggling to gain momentum. Cryptocurrencies, which can be considered riskier assets as well, are not likely to recover unless the current sentiment changes.
For this to happen, many things must change. The inflation that is currently rampant in the US and Europe should cool down, but that will take time. Many central banks are entering a hawkish phase of the cycle. Interest rates are expected to rise to put pressure on stocks and crypto-assets alike.
All the above factors combined mean that cryptocurrencies will lack the motive to drive them upwards. Thus, the current bias remains to the downside unless new themes emerge in the market.
Summary
Technically, several cryptocurrencies have broken key levels of support. Fundamentally, stable coins no longer enjoy the same level of trust. Recent events in this domain have had a psychological toll on market participants. Traders are advised to wait for strong signals before entering any long positions and to trade with a trusted broker like INFINOX to reduce their risks.