Experts identify two key factors that led to the collapse of Bitcoin and other cryptocurrencies.
The events of recent days in Kazakhstan have not spared the crypto market. It is likely that the first cryptocurrency collapsed due to an Internet shutdown in the country where most of the mining pools are concentrated.
After blocking access to the Internet, the overall hash rate decreased from a peak of 229 EH/s to 168 EH/s. The decrease in hash rates primarily affected large pools: 1THash, OKEx Pool and KuCoin Pool. Kazakhstan accounts for 18% of all Bitcoin hash activity. Most of the capacity remained unaffected, but this was enough to cause panic in the market and raise the fear index to an extreme value of -15.
In addition, local traders were disconnected from crypto exchanges and could not manage their positions when the market fell.
This whole situation could lead to a second migration of miners, but from Kazakhstan.
The second, no less important, factor is the policy of the US Federal Reserve System. The Fed has chosen an aggressive policy to combat uncontrolled inflation. The Treasury announced the withdrawal of accumulated dollar reserves to restore the balance of the money supply. This means that many sectors of the economy will be underfunded. Combined with the upcoming Fed rate hike in March, this led to a decline in the stock market, with the S&P 500 falling by 2% and the Nasdaq by 3.3%.
A decrease in hashrate, a slowdown in the market and a fall in shares of technology giants also pulled the cryptocurrency market with them. Bitcoin, which is correlated with it, sank more due to high volatility. In addition, at the end of the year, institutional assets were withdrawn from many crypto funds to rebalance annual reports. And the margin market was unbalanced for quite a long time in the ratio of long to short positions. This situation often leads to manipulation by market makers.
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