We are now 12 months into the crypto bear market, and the situation looks as bleak as ever, with a range of different companies continuing to go bankrupt, exchanges halting withdrawals, and lawsuits piling up – there are many ways in which the price crash can continue to be exacerbated in the coming months.
There had been many speculators who were optimistic that the crypto bear market wouldn’t get much worse, but this has subsequently been disproven as prices continue to fall.
The crypto contagion continues
The crypto contagion has continued to send more companies underwater, and make it difficult for companies to operate as they usually do.
A range of firms were affected after the fall of FTX, with blue chip companies like Gemini suffering to process withdrawals, venture capitalists like Sequoia being forced to write off their $210m investment to zero, and hedge funds like Ikigai losing a significant amount of their AUM thanks to holding their assets on the FTX platform.
— beeple (@beeple) November 12, 2022
The Federal Reserve continues to raise interest rates
One of the main drivers of markets in such an economy is the Federal Reserve, and their decision over whether or not to raise interest rates (and by how much) has a dramatic impact on how capital-efficient it is more companies to borrow and to make further investments.
Given the high levels of inflation currently in the markets, the Federal Reserve has embarked on a series of rate hikes, and this shows no sign of abating.
Continues rises in interest rates in 2023 could mean that there is even more destruction in the cryptocurrency markets as people continue to sell their assets.
Regulators stepping into the fray
At the current stage of the cycle, there are many market participants who are disappointed that they weren’t protected by regulators, and that large-profile collapses such as FTX were allowed to happen.
Throughout most of the bull market, regulators were noticeably absent (with few exceptions), and during the bear market they have seemingly been spending much of their time prosecuting some of the more minor actors in the space, such as Kim Kardashian.
The fall of FTX means that they will now come into the space far more aggressively, and will most likely impose some very strict rules on the industry. Although some may see the clarity as a good thing, there is little doubt that a lot of market activity will be crushed by the regulators, as they raise the bar for entering the space.
Those optimistic about the markets reversing and turning bullish once more must also be prepared for the possibility that a further price crash is increasingly likely.
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