Will the decline in crypto assets' value end soon?
Very few people disagree with the claim that cryptocurrency markets have been under the weather during the majority of 2022 so far. The top cryptocurrency, also the trailblazer in this domain, Bitcoin, has lost nearly two-thirds of its value down from its peak at around 68000 USD per unit. Currently, it is trading at around 24000 USD. Ethereum, the second most important cryptocurrency, has also lost more than a third of its value as it dropped from its highest level at $4800 down to below $2000 per unit. All in all, the industry has taken a beating this year.
Why the prices of cryptocurrencies decline in 2022
This has happened partly because the Dollar has regained its strength, with the Federal Reserve adopting a more hawkish policy stance and increasing rates gradually. Inevitably, the return on holding the dollar increased. Coupled with the fact that there is no actual interest in holding cryptocurrency, those digital tokens have suffered through the last few months. Additionally, skepticism around crypto assets, especially regarding their utility in the financial system, has been growing. Big investors do not see intrinsic value in them, and thus their only holders are long-time believers and enthusiasts. But even if their prices might decline further, cryptocurrency CFDs can be traded in either direction with a trusted broker like Easymarkets - as long as you have good risk management measures in place.
What is next for cryptocurrencies?
The prices of cryptocurrencies depend on several factors, but fundamentally speaking, unless key issues around speed and energy use are solved, their upside potential will probably remain somewhat limited. Technically, bitcoin price could move in either direction, but below the 28000 USD resistance level, it remains in a downtrend. There is no clear bullish or bullish signal on cryptocurrencies at the moment.
How to trade cryptocurrencies?
If you want to start trading cryptocurrencies, it is important to practice first and pay attention to several factors that could potentially move the prices of those tokens up or down. Some of those factors are:
- Regulations: should regulatory bodies tighten regulations concerning trading and using cryptocurrencies, then their prices will remain subdued. Crypto tokens are built on the basis of decentralization and regulations will weaken that premise. Thus, regulations are an important consideration.
- The strength or weakness of the US Dollar. Most cryptocurrencies are denominated in US Dollars, and thus its strength or weakness plays a key role in their valuation. As such, monitoring the Fed's policy announcements and expectations will help you avoid unnecessary risks of trading in the wrong direction.
- Cost of mining. Should the costs of mining crypto tokens decline, then there will be more people trying to mine them as this activity will be more profitable. Thus, keeping an eye on those costs will help you time your investments better.
- Technical. To trade any instrument, it is advisable to understand price action. You can do that by using technical indicators and analyzing the chart to predict price movement based on the past movement.
Cryptocurrencies are relatively new instruments in the market, and there is still a lot to learn and understand about them. As such, traders are advised to trade them with caution and manage risk carefully to protect their capital.