The price of cryptocurrencies has plummeted in recent weeks, wiping off most of the explosive growth seen in the months after President Donald Trump was elected.
Since a recent peak in October, the price of bitcoin has fallen by about a third; on Monday, it was trading at roughly $86,340. The second-biggest cryptocurrency, Ethereum, has fallen 40% since last month.
Jim Reid, a research strategist at Deutsche Bank, stated in a statement to clients on Monday that the market capitalization of cryptocurrencies had decreased by more than $1 trillion over that time.
Here are some details on the reasons for the selloff and the future direction of cryptocurrency:
How much have cryptocurrency prices decreased?
The price of digital assets surged after Trump was elected and declared himself the “first crypto president.”
Bitcoin surged 40% in a couple of weeks, topping $100,000 for the first time last December. Following a drop in the spring, bitcoin surged to a new high of over $126,270 on October 6.
The price of bitcoin has decreased by almost $40,000, or roughly one-third, in recent weeks. Even still, the price is still more than 25% more than it was on Election Day in November of last year.
Since its introduction over 15 years ago, Bitcoin has shown itself to be quite volatile.
As recently as 2022, bitcoin had a dip that reduced its value by more than 60%. A similar reduction occurred in each of the previous two years, when the epidemic prompted waves of purchasing and selling.
“We’ve seen plenty of crypto crashes before,” Hilary Allen, a law professor at American University who researches cryptocurrency regulation, told, citing a lack of basic value to underpin the price.
“The air comes out every now and then with something like cryptocurrency,” Allen continued.
What is causing the price of cryptocurrencies to decline?
Experts blamed the drop in cryptocurrency values on both indications of a possible slowdown in the Federal Reserve’s interest rate reduction and a broader downturn in the stock market.
As some investors worried of an AI bubble, a recent market selloff highlighted the economic uncertainties. The financial returns are still unknown as big tech companies invest hundreds of billions of dollars to construct data centers and create models for the energy-intensive technology.
Since late October, Nvidia, the massive chipmaker responsible for many of the chips powering AI, has seen an almost 10% decline. During that time, the tech-heavy Nasdaq has dropped by almost 4%.
According to Bryan Armour, director of passive strategies research at the financial firm Morningstar, “tech stocks and cryptocurrency tend to be highly correlated when they’re going down because they’re both risky assets and investors treat them similarly in their portfolios.”
Further interest rate reduction were anticipated by some cryptocurrency investors, but there are increasing questions about this approach.
Policymakers had anticipated an additional quarter-point reduction in December after the Fed lowered its benchmark interest rate at both of its prior meetings. However, several Fed members have expressed skepticism about future rate decreases due to persistent inflation.
The anticipation of an interest rate drop often raises asset prices, since the promise of lower borrowing represents a potential benefit for businesses and their investors. However, the contrary is also true, according to analysts: if the prospect of a rate decrease diminishes, assets may decline.
When asked about the importance of Fed policy in the current cryptocurrency selloff, Armour responded, “It’s another tile in the mosaic.”
What is the future of cryptocurrency?
According to experts, it is practically difficult to forecast where the price of cryptocurrency will go next due to its volatility, and the only thing that is definite might be increased volatility.
Over the last year, the growth of bitcoin ETFs, or exchange-traded funds, has made cryptocurrency more widely accepted in traditional finance. This is because these investment vehicles enable clients of major brokers to purchase cryptocurrency without really owning the underlying commodity.
The price of digital assets has fluctuated despite a wider range of investors. According to Armour, around $4.7 billion has left cryptocurrency-related ETFs in November; however, he pointed out that investments have increased in some ETFs linked to smaller currencies, such as Solana and XRP.
Armour remarked, “I don’t think there’s a way to know where the price will go from here.”
