Behind Bitcoin’s Collapse, Financial Fears Are Routing Crypto Faith

In many ways, cryptocurrency exchange Coinbase is the “face” of crypto on Wall Street, and its share price is down more than 20% between steep drops Friday (Jan. 21) and Monday (Jan. 24).

And right now, that face is pretty battered and bruised. Bitcoin is down 22% over the last week, and at $33,200 has lost more than 50% from its Nov. 10 all-time high — the value of the broader crypto market has lost more than $1 trillion since then. Ether is down a third in the past week, and the top “Ethereum Killers” are largely down about 40%. Even Cosmos, which rose 8% in the wee hours of the morning thanks to Asian traders was back down more than 5% on the day and 25% on the week.

See also: What Are the Top DeFi Blockchains?

And it’s not just crypto that’s getting crushed. Like Coinbase, crypto-focused public companies are getting pounded. Stock and crypto trading firm Robinhood is down a third on the year, and crypto-centric Silvergate bank is down 40%. MicroStrategy, a business software maker turned bitcoin investor has seen its stock collapse more than 70% from its February high.

That is to say, it’s a complete rout.

Read also: Bitcoin’s Slide Casts Doubt on Its Usefulness for Payments

So, what’s happening? In a word, the Fed.

Inflation Hedge Hooey

The Federal Reserve’s news that it is pulling back stimulus in order to fight growing inflation has pulled the rug out from under the broader stock market as investors run from anything risky.

And this weekend, Goldman Sachs economist David Mericle told clients that with inflation climbing to its highest level in 40 years, the investing giant now believes the Fed could go beyond the four quarter-percent rate hikes economists are already expecting, CNBC reported.

That makes all the talk about bitcoin being seen as an inflation hedge on Wall Street last year so much hot air. What’s actually happening is that as investors run away from risky investments, they are running fastest of all from bitcoin and cryptocurrencies.

That can be seen clearly in the Greyscale Bitcoin Trust (GBTC) discount. Parent Greyscale Investments offers publicly traded trusts providing accredited investors exposure to digital assets. Until March, its shares sold at a premium of 10% to 25% over the value of the bitcoins it held. Then it flipped to a discount that was in the low teens until November. As of Friday, it hit an all-time low of almost 30%.

See also: MicroStrategy CEO Anticipates Bitcoin Resurgence

Still, the coming decline of stimulus is not the only factor. Russia’s increasingly obvious moves to invade Ukraine are causing tensions to rise to heights unheard of since the Cold War — neighbors are sending weapons, NATO’s threats are getting louder, and the potential for a diplomatic and economic siege is spooking investors everywhere.

There’s also a growing push to restrict the use of bitcoin and other cryptocurrencies. China banned them outright, but India seems to have backed away from a widely feared similar ban, although it will enact strict regulations. Russia’s central bank is talking about a ban on both the mining and trading of cryptocurrencies.

Read more: Crypto Prices Drop After Russia Calls for Ban

Some Are Still Bullish

Mining is an interesting sector right now. Despite bitcoin being under siege from environmentalist and its price collapsing, bitcoin miners are investing heavily, with the bitcoin difficulty rating — a measure of how much extremely expensive computing power is dedicated to mining bitcoin at any one time — reaching an all-time high this weekend.

See also: What’s a Blockchain and How Does It Work?

And then there’s Texas-based green bitcoin miner Rhodium, which filed an S-1 with the Securities and Exchange Commission (SEC) early this month, announcing its intention to go public.

That is a pretty good indication that crypto still believes in crypto.