Cryptocurrencies Affected by Inflation, Taxes, Trends

investopedia.com:

Top cryptocurrencies like Bitcoin, Ethereum, and BNB may be more susceptible to external market factors than some crypto enthusiasts would like to believe. These and other major tokens fell sharply in the first two weeks of April 2022, with the broader crypto market losing almost $400 billion of value during that time. What's worse, analysts say that a «disaster» in the financial markets could send crypto prices plunging even further.

While Bitcoin has moved above and below a price threshold of $40,000 throughout most of 2022, the latest price drop is a reminder to investors that decentralized digital tokens may still react strongly to factors such as inflation, taxes, and overall market performance.

The most recent cryptocurrency sell-off has coincided with a decline in U.S. stock market futures. These declines may be attributable to news that March marked an 8.5% year-over-year (YOY) increase in the consumer price index (CPI). Inflation remains a significant concern, and with it the possibility of a recession in the near to medium term. Investors viewing cryptocurrencies as a strong alternative investment during times of market turbulence should watch carefully to see how cryptocurrency prices move as the Federal Reserve works to curb inflation.

The recent slump in cryptocurrency price levels may also be due in part to tax season. In a majority of recent tax seasons, from January through March, Bitcoin has fallen. While this could be a coincidence, some analysts suspect that Bitcoin tends to underperform in the first months of the year relative to other months because investors who realized major gains in crypto assets during the previous year tend to sell some of their holdings to cover anticipated tax liabilities.