The crypto market underwent a development last week that can be described without exaggeration as a brutal collapse: In the wake of a complete change in sentiment and amplified by additional liquidations totaling $1.5 billion last week, as well as increased selling pressure from short-term investors, over a trillion dollars in total market capitalization was lost.
Tech stocks on a downtrend as well
The crypto market is not alone in this development: the NASDAQ-100 index, which is dominated by risky tech stocks, also experienced an alarming sell-off to the tune of 20 percent in recent days. This development also had an impact on Bitcoin – and this despite the fact that Bitcoin and the entire crypto market historically have little correlation with the stock and bond markets. The current turbulent macroeconomic situation caused uncertainty in all markets characterized by higher risk appetite, which is why the correlation of BTC and the technology-heavy NASDAQ index reached a new high.
Current geopolitical developments have also played their part in the state of the market, with tensions on the border between Russia and Ukraine and Russia's increasing aggression fueling fears of a resurgence of conflict in the region. In addition, the Russian central bank's proposal of a far-reaching mining ban sent signals of an event we had already expected. In doing so, the central bank echoed fears that capital flight posed a risk to the stability of the country's financial system, but in fact it may also have been a strategic decision, as opposition forces had received donations in the form of BTC after their bank accounts were frozen.
Web3 is gaining in importance
On the other side of the world, the United States Federal Reserve (Fed) announced plans to reduce its nine-trillion-dollar balance sheet by raising interest rates in four steps this year. This week's Federal Open Market Committee (FOMC) meeting is expected to decide whether the first rate hike will come as early as March or even sooner. As Goldman Sachs reported, rising inflation could even push the Fed to raise rates even further, which would give risky asset classes – such as cryptos – further skepticism among investors:in. The trend reversal towards safe assets is also indicated by the already rising interest rates on U.S. government bonds.
But regardless of this gloomy sentiment, developments within the crypto industry are not stopping: the web3 is gaining increasing interest from commercial and institutional players. Twitter, for example, enabled the use of NFTs demonstrably owned by users as profile pictures, and in the same period a cooperation between MasterCard and Coinbase caused a stir: Users can now purchase NFTs on the platform with conventional credit and debit cards. Last but not least, the announcement of Facebook parent company Meta to enter the NFT world with its own platform should also be mentioned.
More venture capital for crypto funds
DeFi also had an eventful week, with decentralized trading exchanges like Uniswap and DyDyb lowering their trading fees in the wake of a full-blown bidding war, and lending platform Aave announcing it would launch its Aave Arc lending and liquidity service on two Layer 2 networks, Arbitrum and Optimism.
There was also no end to the influx of money into the crypto market at a time of selling off: just look at venture capital firm Andreessen Horowitz's announcement that it was raising capital to the tune of $4.5 billion to invest in new crypto funds. Or to crypto billionaire Sam Bankman-Fried's plan to launch a $2 billion FTX venture fund with a primary focus on Web3 adoption.
The anticipated explosion of the NFT gaming industry also appears to be taking shape: Software company Animoca Brands raised about $400 million in a fundraising campaign, and Microsoft's nearly $70 billion acquisition of Activision is also seen by some as a bet on the rise of the Metaverse.