Hello, community! Today we woke up with alarms ringing in the market. Both Bitcoin and technology stocks are falling sharply.
What is happening and why should we care?
Here I explain it to you easily!
1. Bitcoin (BTC) and Technology
If you see that Bitcoin and technology stocks (like those in the Nasdaq index) are falling at the same time, it is not a coincidence. When there is a lot of fear in the market, investors sell the assets they consider more 'risky'.
• Follow the correction and quote around $83,000 - $86,000. This drop is partly due to people selling their leveraged positions (borrowed money to invest, which is very risky).
• Nasdaq 100: This index, where the large technology companies of the U.S. are located, is also under pressure. Why? Because these companies are very sensitive to interest rates (the price of money).
The drop in Bitcoin is becoming larger because investors see it as a "risky" asset just like technology stocks in times of panic.
The main reason for this fear is the Federal Reserve (Fed) of the U.S.
• High Rates: Money is expensive. This slows spending and investments, but helps control inflation.
• Low Rates: Money is cheap. This encourages investment (and is great for BTC and technology).
Last week, employment data in the U.S. was published that confused analysts:
1. There is a lot of new employment: The economy continues to hire strongly. This is a sign that the economy is very strong and the Fed does not need to lower rates soon.
2. Unemployment rose a little: This is a sign that the economy is weakening and the Fed should lower rates soon.
- That the Fed decides that the economy is still very strong (thanks to job creation) and decides to keep interest rates "higher for longer."
If money (interest rates) remains expensive, investments in high-risk assets like Bitcoin and technology become less attractive. That's why we're seeing sales today.
