The crypto market is down today, with Bitcoin dropping below the $30,00 mark. Traders are worried over rising inflation, interest rate hikes and geopolitical instability.

Nischal Shetty, co-founder and CEO of WazirX, says the current dip in prices is due to several macroeconomic factors. However, the market will bounce back once these issues are addressed.

1. Inflation

As inflation continues to rise, investors will be less willing to invest in equities. This will lead to lower stock market prices. The effect of inflation on the stock market is called systematic risk.

Investors may also be hesitant to trade cryptocurrencies due to the lack of liquidity and high transaction costs. In addition, taxation issues make it difficult to calculate capital gains and losses using traditional methods. Investors must use a cost basis method (first in, first out or average cost) to track the cost of their purchases and sales. This can be tricky when calculating gains and losses on multiple crypto assets.

Despite the challenges, cryptocurrency adoption has continued to grow in India. This is because the investment opportunities and returns that cryptos offer are attractive to investors. In addition, the Indian population is young and innovative, and they are quick to adopt new technologies.

This was boosted by the lifting of the ban on crypto trading by the Supreme Court in March 2020. In addition, the government has been introducing rules that help to regulate cryptos and make them safer for users. This includes bringing them under the Prevention of Money Laundering Act and making exchanges report transactions.

2. Interest Rates

A few months ago, Bitcoin and other digital currencies were at record highs. Investors and crypto evangelists were looking forward to a new wave of bullish sentiment and even predicting that Bitcoin would pass the $100,000 mark before the year ends.

But, the cryptocurrency market is now experiencing one of the worst times in its history. It has lost more than half its value and is well below its all-time high.

This is partly due to the US Fed planning to increase interest rates. But, rising inflation around the world is also to blame. And, the recent Terra-Luna crash has led to a significant reduction in liquidity for the entire crypto industry.

These factors have made investors nervous about investing in cryptocurrencies. Some have even been pushed to pull out of the markets altogether and move into safer investments such as gold. Crypto prices have fallen just like stocks and bonds, proving that they aren’t as safe as some investors may have thought. They are also volatile, and if a price bubble bursts, it can take months for the market to recover.

3. Taxes

At their peak, crypto markets were worth $3.1 trillion, but the recent crash has left them far below that mark. Many investors have lost faith in digital currencies, and stablecoins like Luna, TerraUSD and Tether have been plagued by the online equivalent of a bank run.

Even so, some investors remain steadfast and have been buying into the market despite recent events. Others are waiting to see whether this will be the start of a prolonged downturn or a short-term correction.

Regardless, investors should always be aware that they could lose all of their money in the crypto market. As such, they should diversify and invest in other assets. This could include traditional stocks and real estate, as well as cash holdings. By doing so, they will be less likely to lose all of their wealth if cryptocurrencies are affected by regulatory changes or other issues that could affect prices. In addition, they should always make sure to research an asset thoroughly before investing in it. This will help them avoid making poor decisions based on word of mouth or popular narratives.

4. Geopolitical issues

Cryptocurrency markets have largely been influenced by geopolitical factors. These factors can include the way a country’s land and resources affect its government, trade, and relationships with other countries. Geopolitical issues can also influence laws that dictate how businesses operate within a country. For example, changes in local laws can impact how companies are regulated or how they interact with other businesses in the country.

While the cryptocurrency market started off strong this year, it’s been struggling lately. This downturn is likely due to several factors, including rising inflation and interest rates. It could also be caused by political events, like the US-Russia conflict or tensions between other countries.

It’s important to remember that cryptocurrency prices are volatile and can swing up and down. It’s a good idea to diversify your investments and follow the news to stay updated on any developments. Also, be sure to do your research before making any investment decisions. This will help you make smarter and more informed choices about your crypto investments. With a little luck, your cryptocurrency investments will grow and pay off in the long run.

5. Stability

Crypto markets can be more volatile than traditional financial ones, because they don’t have circuit breakers that automatically halt trading when prices plunge too fast. That means that even a small drop can send shockwaves through the space, creating fear in traders and driving them to sell their tokens at a loss.

For instance, when Elon Musk (who has a track record of moving markets with his tweets) announced that Tesla would stop accepting Bitcoin due to its environmental impact, the market responded by dropping. The move also heightened discussion around green policies targeting Bitcoin mining activities and caused people to sell their cryptos out of fear that the price could continue falling.

Moreover, the crypto world is very new and takes time for investors to understand how it works. That is why it is vulnerable to a wide range of factors that can drive the market, from rabid optimism to pessimistic despair. It also doesn’t help that the industry is highly speculative, and the prices of some cryptocurrencies can skyrocket to stunning heights or crash to horrific lows at the blink of an eye.

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