Why are cryptocurrencies going down, market bitcoin crypto falling

As a stronger dollar and investor nerves strip off almost $140 billion in cryptocurrency market value, Bitcoin has plunged the most since March.
  • Over Sunday and Monday, Bitcoin slipped as much as 21 percent, its largest two-day fall since March, under pressure from investor risk aversion that also weakened equities, while the dollar rallied.
  • The threat of Donald Trump's second impeachment, led by the Democrats, encouraged safe haven flows into the dollar, growing to two-week highs.
  • Over the past month, Bitcoin is still up roughly 89 percent.
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On Monday, cryptocurrencies plummeted, wiping off almost $140 billion in total market cap, as traders took profits on the impressive rally so far this month, amid a stronger dollar and increasing political uncertainty.

Investors will keep a close eye on President Donald Trump's potential impeachment and a surge in Asia's COVID-19 events.

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Over Sunday and Monday, Bitcoin plummeted as much as 21 percent, its biggest two-day decrease since March, but on a trailing one-month basis, the cryptocurrency is still up around 89 percent. Ethereum has fallen by 12% . The smaller XRP and Litecoin coins each shed about 18 percent.

On Monday, the collapse in cryptocurrencies saw almost $140 billion wiped out of the entire economy. For the first time ever, the total valuation of the cryptocurrency market hit over $1 trillion last week.

Bitcoin reached a record high above $41,000 last week, swept up by a combination of a weakened dollar, economic optimism and a surge of positive sentiment towards cryptocurrencies, as this year's big-name investors and investment banks marketed their potential for huge profits.

As the Democrats prepared to impeach Trump for a second time, after his alleged incitement of a right-wing mob that invaded the Capitol building last week, political instability was growing, knocking investor risk appetite for assets such as stocks and commodities.

"The horror of the ongoing assault on our democracy perpetrated by this President is intensified and so is the immediate need for action."The horror of this President's ongoing assault on our democracy has intensified and so is the immediate need for action.

"The stronger dollar and higher bond yields has also sparked a plunge in Bitcoin and in gold prices this morning," Rabobank strategists said in a statement.

Bitcoin and other cryptocurrencies prefer to do the opposite of whatever the dollar does, much like several commodities.

Bitcoin's correlation with the dollar index is -0.95, which means that the two are more likely than not to shift inversely to each other. Correlation is calculated at between 1.0 and -1.0, with positive correlation being signified by the former - two assets are likely to travel in complete parallel with each other - and the latter, the reverse.

The dollar last gained 0.4 percent against a major currency index, selling at its highest in nearly two weeks, last week having plumbed 33-month lows.

According to Bloomberg data, Ethereum, the second-largest cryptocurrency by market capitalization after Bitcoin, dropped 11.4 percent on the Bitfinex exchange, where trading volume was the highest. The price was around $1,128, still within reach of the three-year highs last week of around $1,350.

However, given the increasing number of buyers and owners of cryptocurrencies, analysts said the withdrawal was likely to be temporary.

"Some of the anarchy froth supporting Bitcoin after anti-government types stormed Capitol Hill is receding a touch. But the reason to stay long coins on the new age technology impulse and all that is associated with blockchain technology hasn't changed much," said Stephen Innes, chief market strategist for Axi.

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