look at the causes and what could happen now with cryptocurrencies

The cryptocurrency market started on August 19 to the downside, after several days of stability and increases. The leader of the ecosystem, bitcoin (BTC), fell to the level of USD 21,000, a price that it had not touched for almost a month. At the same time, ether (ETH) erased its growth of the last 9 days by retreating to the $1,700 margin.

In this way, the price of BTC and ETH has devalued by more than 9% so far this day, along with the decline of other cryptocurrencies. What is the reason for this widespread drop? According to market analyst Craig Erlam, one of the causes is that there was no strong demand in cryptocurrencies. That’s why we’ve seen so much stability the last few days.

“The recovery trend seemed weak and it has been for weeks, but I don’t think that alone explains such a big move all of a sudden,” he said. Investment and markets analyst at Hargreaves Lansdown, Susannah Streeter, stressed that it has to do with the concern about the rise in interest rates in the United States.

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He indicated that “speculators have withdrawn from high-risk assets in the expectation that higher interest rates will remain for much longer.” Precisely, on Thursday, the 18th, some officials of the US Federal Reserve gave divergent signals about the size of the upcoming interest rate hike.

Among them is Neel Kashkari, who said that it was necessary to raise interest rates even if a recession was triggered. Meanwhile, his colleague James Bullard has assured that “the idea that inflation has reached its peak is a hope, but it is not statistically real at this point.”

Bye to the stability of cryptocurrencies: great volatility is expected

Following these comments, “hopes that the price of the main cryptocurrencies could be maintained have faded, as today’s cryptocurrency carnage rounds off an already damaging week,” analyst Streeter believes.

He added: “This is not a sudden drop, as the assets did not recover immediately, but sank even more in the following hours.” That is why different specialists they project significant volatility in the price of cryptocurrencies over the next few days. Even for ETH that came from a strong rise.

“The excitement around the upcoming Ethereum merger has hit a bump after the Tornado Cash smart contract was included in the OFAC sanctioned entities list,” Mauricio Di Bartolomeo, the co-founder and CEO of the bitcoin-collateralized lending company Ledn, told Criptonews.

The industry expert detailed that there is concern in the Ethereum community. Precisely because once the protocol makes the transition to proof of stake, its validators may only allow fully compatible transactions. That is, they do not involve sanctioned addresses or contracts.

He warns that in addition headwinds in both Europe and China are putting pressure on stock markets currently. That makes him believe that, “with so many moving pieces in the crypto and macro landscape, cryptocurrency prices could suffer from strong volatility in the coming weeks.” Even though the reduction in inflation in the United States had been encouraging for the market.

Traders of bitcoin, ether and other cryptocurrencies may prefer to take refuge in dollars

For this reason, Di Bartolomeo points out that investors might prefer to avoid future volatility by going to US dollars rather than other assets. This is also what Streeter thinks, who expressed that we should expect “that volatility will continue as the liquidity surrounding financial markets evaporates and as long as interest rates continue to rise.”

Walid Koudmani, the chief market analyst at XTB, summarized: “One thing is for sure, crypto investors are increasingly concerned about the sustainability of a rally of relief and this most recent pullback could shake their confidence once again despite some earlier encouraging signs.”

Therefore, he also expects a notable volatility that could affect bitcoin and ether, as well as other cryptocurrencies. In the immediate future, we will have to see how they react to the economic outlook that Jerome Powell, the chairman of the US Federal Reserve, and other officials will give next week.