The cryptocurrency market keeps suffering huge losses hitting new multi-month lows. Bitcoin tested an important $30,000 support level this week, dropping almost 50% from its November high of $67,802.
Despite the magnitude of the recent decline, most market participants were hardly surprised by what had happened. Some time ago, such a scenario was considered the most likely. As the number of professional investors trading cryptocurrencies is constantly growing, the crypto market is increasingly correlating with traditional financial markets. Many institutional investors invest in cryptocurrencies, considering them as risky assets that depend on market sentiment like stock indices, stocks, or currencies.
A gloomy atmosphere persists in the markets. The Fed is aggressively raising interest rates in an attempt to tackle surging inflation, which has already reached 40-year highs. The resulting increase in borrowing costs, in turn, depresses consumer spending, threatening to push the US economy into recession.
Statistics show that the Fed's policy tightening has led to a recession 11 times over the past 70 years, and only three times resulted in a 'soft landing.' For this reason, traders' fears that this time everything will end badly are pretty justified. It is not surprising that traders keep exiting all risky assets in such conditions, which drives a sell-off in indices, stocks, and cryptocurrencies that correlate with them.
Coinbase (NASDAQ:COIN) reports added fuel to the fire. On Tuesday, the crypto exchange reported a $430 million net loss in the first quarter, which triggered a dive in Coinbase shares to around $60 from $381, where the shares had traded since the IPO when the company went public.
Markets project that the stock may be worth even less very soon, given the company's forecasts of a further decrease in the number of active users and a decrease in trading volumes during the 2nd quarter of 2022. Let us recall that Coinbase gets most of its revenue from trading fees, so this source of income will keep shrinking.
We can't ignore the recent incident with TerraUSD. The third most popular stablecoin, TerraUSD, which should trade at $1, fell to 20 cents on Wednesday. US Treasury Secretary Janet Yellen immediately urged Congress to establish a regulatory framework on stablecoins.
It's worth noting that this initiative can be supported by thousands of investors who suffered losses due to the TerraUSD collapse. There has long been an opinion that the oversight of the stablecoin sector will put an end to anonymity and start the process of the gradual collapse of the entire cryptocurrency industry. That being said, we recommend holding your short BTC positions with a target of $20,000.