It’s not just the crypto world that’s not looking good.
Experts say this is because of the wider global climate. A recession is around the corner, inflation is soaring, interest rates are rising and living costs are biting. Stock markets are struggling too, with the US S&P 500 now in a bear market (down 20% from its recent high).
As a result of the Fed continuing to raise interest rates aggressively and with inflation still high, there are likely to be more difficulties ahead across all markets, including cryptocurrencies.
Higher interest rates make borrowing costs more expensive for people and companies, and that’s raising concerns about an economic recession.
Stocks have fallen tremendously from records set in January, with the broad S&P 500 index entering a bear market this week.
“What this episode, this crash in crypto prices, shows are that cryptocurrencies are by and large speculative financial assets that are subject to macroeconomic forces, such as changes in interest rates,” says Eswar Prasad, an economics professor at Cornell University.
Crypto companies are responding by re-evaluating their plans for the future ahead.
Coinbase announced that they will be reducing their staff by almost one-fifth.
In a memo to staff, the company’s CEO said Coinbase “grew too quickly.”
“We appear to be entering a recession,” Brian Armstrong wrote.
As shares of tech companies have plummeted, so has Bitcoin’s value.
Some backers of cryptocurrencies still believe a “crypto winter” could lead to a “crypto spring.” In the past, deep downturns have led to strong rebounds.
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