The ongoing volatility in the cryptocurrency market continues to affect Bitcoin (BTC) as the digital assets see an increase in capital outflows. Notably, Bitcoin’s market capitalization has nearly tripled from the $1.2 trillion recorded during the asset’s peak in late 2021.
Notably, as of August 27, 2022, Bitcoin’s market capitalization was $387 billion, correcting more than 56% year-over-year from the $894 billion recorded at the beginning of 2022, according to CoinMarketCap data.
Bitcoin Struggling Around $20,000
Continued decline in market capitalization continues to weigh on Bitcoin price as it faces a fresh battle to sustain gains above $20,000. Losses were recorded in the second quarter of 2022 when Bitcoin posted its worst quarterly return of -56%. At the time of writing, the major cryptocurrency is trading at $20,200, down more than 5% over the past 24 hours.
Although the cryptocurrency market is betting on a future recovery, there is still a possibility that the correction may extend further due to the prevailing macroeconomic conditions. The Federal Reserve is tightening interest rates to tackle high inflation, and the market has since reacted negatively to the latest move.
For example, when Federal Reserve Chairman Jerome Powell announced that the US central bank might continue to raise interest rates, the price of Bitcoin fell even more. Notably, the Fed’s actions led to a stronger dollar as investors moved away from risky assets such as Bitcoin.
Meanwhile, bitcoin’s price action has largely mirrored stocks. In this case, both markets in 2022 were affected by significant sales.
In addition to macroeconomic factors, Bitcoin and the general crypto market have been affected by notable incidents such as the collapse of the Terra ecosystem (LUNA) and the Celsius bankruptcy filing. Due to the large losses, the collapse is likely to weaken the investors’ motivation.
Thus, the incident has partially contributed to the flow of regulatory discussions globally as more jurisdictions seek to protect consumers.
Selling pressure is easing
Additionally, the market correction in Bitcoin appears to dampen investors’ interest in trading the asset as they opt for HODL in anticipation of a future rally. This was highlighted by a Coinphony report on August 25 that indicated that the seven-day moving average of Bitcoin for crypto exchange deposits fell to a two-year low of 1,921 BTC.
Elsewhere, despite the state of the market, analysts believe the correction is natural and part of the growth path. Along those lines, Mike McGlone, chief commodity strategist at Bloomberg Intelligence, believes that Bitcoin will emerge in the second half of the year, outperforming other asset classes.
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The post of more than $500 billion of bitcoin market capitalization appeared in 2022 as BTC held up to $20,000 for the first time on Coinphony.