In the past few weeks, the cryptocurrency market has been declining, and the total market value has dropped sharply by more than 8%. This behavior trend forces some people to guess that the bear market is beginning, while others remain optimistic and insist that there are at least a few months of bullish. The truth may be somewhere in between, and it is probably related to COVID's comeback and stock market panic.
In the past eight years, the cryptocurrency market has been following a four-year cycle. Usually, there will be a year-long bull market, and most cryptocurrencies will hit a record high. Then there may be a three-year bear market, with the market value of cryptocurrency falling by 50% to 75% or more. This pattern has appeared twice before, in 2014 and 2017 respectively, and it may happen again in early 2022.
The recent price drop can be attributed to the global spread of COVID19, especially Omicron variant, which is highly contagious and leads to a sharp increase in the use of infected people and intensive care unit beds, resulting in labor shortage.
Because of all these uncertainties around the world, the stock market and cryptocurrency market have been hit. Because investors turn to safer assets and are unwilling to take high risks. If it turns out that Omicron is not a major problem, and the world will soon return to normal, then as investors regain confidence, this decline may soon end. However, if the labor force continues to be in short supply, and it is even possible to implement the home order again, investors will continue to lose confidence in the market, and then prices will continue to fall.
In addition, ProShares, bitcoin futures and ETF became one of the top 10 funds with the worst performance two months after listing, with a sharp drop of over 30%. The main reason for the decline of bitcoin and encryption market this year is not only the mutant strain just mentioned, but also the strength of the Fed's interest rate hike expectation, which is also the biggest negative for the industry all the time.
Since 2020, mainstream financial institutions, such as Gray Scale and MicroStrategy, have begun to lay out digital assets such as Bitcoin on a large scale, and their positions are constantly hitting new highs. The data shows that in 2021, there were 38 listed companies in the world holding 237,606.01 bitcoins, accounting for more than 1% of the global circulation of bitcoins, and the market value exceeded 10 billion US dollars. The successive entry of Old Money may not change the decentralization characteristics of digital assets, but it makes its macro trend gradually consistent with the traditional financial market.
Corresponding to the big bull market of digital assets opened at the end of 2020, the market value of U.S. stocks is at a high level in 2021 as a whole, and the common driving force behind both of them belongs to the opening QE of the Federal Reserve, that is, the quantitative easing cycle. Therefore, the policy trend of the Federal Reserve has also become a barometer of the global financial circle including the encryption market. The macroeconomic trend of the United States, which is composed of inflation rate and employment rate, GDP growth rate, import and export volume and other indicators, determines the policy direction of the Federal Reserve.
The U.S. non-agricultural employment report has a great influence on the fluctuation of the encryption market. The U.S. non-agricultural employment report released in early November 2021 fell short of the expected increase, hitting a new low in the year. The unemployment rate dropped to 4.2%, exceeding the market expectation of 4.5%. At the moment when the data was released, Bitcoin rose rapidly for a short time, rising to 57,617 dollars at the highest and then continuing to decline, with the lowest drop of 41,209 dollars in the day. Other digital assets also continued to fall with Bitcoin, with most of the declines exceeding 20% or even 30%.
Uncertainty about the mutant strain in Omicron is high, coupled with disappointing employment data, US stock investors decided to sell before the weekend, which undoubtedly affected the cryptocurrency market.
It is worth noting that the recent riots broke out in Kazakhstan. After Kazakhstan's largest telecom provider Kazakhtelecom shut down the Internet access in the whole country, the hash rate of many bitcoin mines declined, while Kazakhstan has 18% of the global bitcoin computing power, which has a certain impact on the supply of bitcoin and has a negative impact on the market.