The secret behind crypto markets

Given the recent volatility in the crypto market, you should be wondering why! A reporter at Future Blockchain explains why.

The cryptocurrency market is in the midst of a major crash, particularly for the two largest currencies, Bitcoin and Ether, which have fallen sharply in the past weeks and months, while economic analysts expect further crashes in the coming weeks.
Bitcoin continued to fall to its lowest level in more than six months as the rapid global sell-off of risky assets continued amid the Crisis in Ukraine.
That amount of decline has wiped more than $0.5 trillion off bitcoin's market value, while digital currencies overall have lost more than $1.5 trillion in market value.

The reason for the fall?
According to experts, the authors suggest some of the reasons for the sharp drop in cryptocurrency prices, including:
One of the most important reasons is the policy of the Federal Reserve, America's central bank. The Fed's decision to raise interest rates to combat inflation at its November meeting was seen as a reversal of the policy that had strengthened the price of digital currencies in 2020.
Citing Mr. Dolman, the authors argue that the recent price collapse has shattered the notion that bitcoin is inflation-proof. Mr. Dolman also notes that bitcoin is now traded by governments and traditional financial institutions as an indicator of overall risk, and he emphasizes that this will continue in the short term. Although he does not think this will become a common view in the long term.

One of the other reasons for the drop in bitcoin's price is that traders in the cryptocurrency market prefer to trade in alternative currencies that are viewed as desirable, she added, Digital currencies like Solana, Polkadot, Cardano and Avalanche are emerging as major cryptocurrencies that can compete with bitcoin and Ether, According to Edward Moya, senior market analyst for cryptocurrencies at Oanda, these currencies are beating bitcoin and succeeding in trading in the cryptocurrency market.
The global energy crisis and Russia's threat to ban the use of bitcoin are among the reasons bitcoin has struggled to stabilize its price and circulate in the cryptocurrency market.

What is the Fed raising rates?

The Fed raises interest rates to bring down inflation. The rate hike here is an increase in the Federal funds rate, which, don't get me wrong, is not what we pay on our deposits, but what banks pay each other to borrow their spare money for emergencies. To raise interest rates is to raise the interbank lending rate of the market as a whole and maintain it within a certain range. The federal funds rate is calculated by combining the interbank lending rates of major banks in the market. Each bank can decide its own interbank lending rate. The Fed, as the central bank, can also influence the federal funds rate by raising its own interbank lending rates. But if there is too much money in the market, and commercial banks have enough money to lend to each other, they won't be foolish enough to borrow from the Fed, which has just raised interest rates. So the Fed tries to influence the federal funds rate simply by raising its own lending rates, and sometimes it's hard to get the desired effect of raising interest rates.

As a result, the Fed usually needs to use other methods to help it pump money out of the market first, leaving commercial banks generally short of cash, in order to reach its rate hike target more quickly. We know that the government does not have the right to print money, but it has the right to issue Treasury bonds to borrow money, and the Federal Reserve is responsible for printing money, and usually distributes it to the market by buying government bonds and lending money to commercial banks. By buying government debt, the Fed has accumulated a huge amount of high-quality debt, which is an important lever to withdraw money from the market. So how do you get money out of the market through bonds? For example, when the Federal Reserve wants to raise interest rates by one percentage point, in addition to raising its own borrowing interest, the Federal Reserve will start to sell the massive bonds it has accumulated to the open market in order to recycle market funds and improve the efficiency of raising interest rates.Like Shouting to the street: "Dear friends, I have a lot of high-quality bonds issued by many countries, now I want to vomit blood to sell my high-quality bonds at a low price, you have money to buy quickly! It's now or never. I watch the average interbank lending rate and when it goes up by one percentage point, I stop selling. As a result, qualified financial institutions have been buying up the high-quality bonds held by the Federal Reserve, and the money of financial institutions has been gradually collected by the Federal Reserve. This kind of fire sale of bonds is called shrinking the balance sheet. After the Federal Reserve raises its own interest rate and combines it with such a combination of balance sheet reduction, banks and other financial institutions have less money available for other investments and loans. Banks will cherish their spare funds more and cannot lend to other banks at lower interest rates as before.

If a bank is in a hurry to borrow money, it can only lend you a higher interest rate so that the other bank is willing to lend you money. In financial markets, an increase in the interbank lending rate directly leads to an increase in the federal funds rate, known as a rate hike. The federal funds rate increase will further spread, saying after raising interest rates Banks can lend the low interest have less money, borrow money from other Banks, the cost of getting high, need to attract people to put the money to the bank, the bank will put the interest of saving a little increase, so in addition to get higher interest on loans, we ordinary people interest also can become high,

But raising interest rates is not really about raising interest rates on our deposits, it's just one of the side-effects, and the direct effect is to make it more expensive for banks to get money. As it becomes more expensive for banks to obtain money, they will lend less to other countries, and less money will be derived from those loans, easing inflationary pressures. In order to measure the effect, the Fed targets the rise of the federal funds rate, which is made up of interbank rates, rudely.

According to the report, in fact, we encrypt the currency investors can be divided into different groups with different motives, this will enable us to better understand our current saw action, however, whether encryption currency or any other market in the field of financial advisers, will give you such a piece of advice, or does not exist any security within the field.