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High Volatility and Price Collapse: Cryptocurrencies remain highly speculative assets. Rapid, dramatic price swings (like the market wipeouts seen recently) are a structural feature. Without underlying economic value like dividends or productive capacity, their price is primarily driven by sentiment, which can lead to rapid corrections or collapses when confidence wanes.
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Correlation with Risk Assets: Bitcoin and other major cryptos are increasingly correlated with traditional “risk-on” assets, particularly tech stocks (like the Nasdaq 100). This means the crypto market is highly sensitive to:
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Monetary Policy: Uncertainty or hawkish actions by central banks, especially the US Federal Reserve (e.g., doubts over interest rate cuts), can depress prices.
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Macroeconomic Uncertainty: Global risk aversion driven by geopolitical events or concerns over inflated asset valuations (like in the AI sector) leads to investors pulling money out of speculative assets, including crypto.
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Liquidity Shocks: Major liquidations or rapid sell-offs can create a “liquidity vacuum,” where exchanges lack sufficient buyers (“ask-side liquidity”), deepening the price drop and scaring away market makers.