Pick any major bitcoin that has been relatively stable, like bitcoin, Ethereum, etc., and you will see that they are all currently trading in the red. Anyone whose investment portfolio has been predominantly based on cryptocurrencies must be panicking right now. Not only new investors, but also long-term investors are feeling the strain of this collapse.
The global crypto market has shrunk from $1.02 trillion to $983.72 billion, a decline of 11 percent since Monday. The global cryptocurrency market capitalization has fallen by more than $2 trillion after touching the $3 trillion mark in November of last year. The price of almost all major coins is now worth half or even less than their all-time highs. At the time of writing, Bitcoin was trading at $21,042. The day before, that is, on June 15, it was at $20,407, the lowest has been in the last 18 months. Ethereum or Eth, which used to trade above $2,000 just a few months ago, was at $1,040 on June 15. Bitcoin alone, falling 67 percent from its all-time high. But what led to this accident? Weren’t cryptocurrencies supposed to be immune to recessions? Weren’t they supposed to protect investors when “mainstream economics failed”? Well, we take a look at why cryptocurrencies, especially the top two, Bitcoin and Eth, are crashing. Two stablecoins collide Last month, two low-profile but very important stablecoins, Luna and Terra, crashed badly. Before the crash, Terra had a market capitalization of more than $18 billion. Stablecoins are believed to be stable because they are priced equal to the US dollar or other fiat currency and exist primarily so that crypto investors can easily get in and out of fiat currency without a third party (in this case, a bank) approving. these minutes. When Luna crashed 99.90 percent, Terraform Labs (the company behind Terra) tried to sell all of their Bitcoin, to fix the rate at $1, which they couldn’t do. As a result, it wiped out over $40 billion from the crypto market. If a cryptocurrency that was pegged to the dollar and was supposed to be stable could fail this badly, investors felt that any other cryptocurrency could fail it. The Stock Market Crash As much as crypto newbies would like to believe otherwise, the crypto market is tied to the stock market. If a downward trend is seen in the stock market, the same is reflected in the crypto market almost immediately. This is because investor behavior, consumer behavior, and a number of other important factors that affect the stock market also affect the cryptocurrency market. With the stock market reeling for some time and tech stocks down more than a quarter, it was only a matter of time before cryptocurrencies crashed. Major Economies Raise Interest Rates Thanks to the two aforementioned reasons, people were becoming increasingly skeptical of cryptocurrencies this month anyway. Due to inflation and a looming recession, most major economies have had to adjust their interest rates, the vast majority of people around the world don’t really have the money to invest in a volatile asset like cryptocurrencies. And because most cryptocurrency exchanges reflect what is happening in the American stock market, when the US stock markets crashed due to an interest rate hike by the US Federal Reserve In the US, cryptocurrencies did the same. Shenanigans of crypto exchanges All these situations are making people lose confidence in cryptocurrencies. To make matters worse, Binance, the world’s largest cryptocurrency exchange, and Celsius, one of the world’s largest cryptocurrency lenders, halted all Bitcoin withdrawals for a few hours. While Binance claimed that this was done due to a stuck transaction, Celsius claims that they had to pause lending due to extreme market conditions. On top of that, Coinbase, one of the largest crypto exchanges in the world, laid off 18 percent or 1,100 of its employees. All of this meant that investors panicked and began dumping Bitcoin and Eth, driving down their value. market correctionsFinally, there is the concept called market corrections. Market corrections tend to operate in waves. Due to the global lockdown, many people invested in cryptocurrencies for the first time. Naturally, the value of currencies like Bitcoin and Eth skyrocketed and became overinflated. However, every time the value rises due to oversubscription in crypto, the market corrects itself. In this process, there is a low point or a period in which the market falls. Under normal circumstances, the fall is not so bad. However, due to the aforementioned reasons, this time Bitcoin and Eth plummeted a bit more than normal. In a couple of weeks or months, things should be back to normal – this is what investment experts believe. What’s next? People who have cash and are looking for investment opportunities will invest, no matter how bad the market is. The hope is to always buy low and sell high, and right now the crypto market is at its lowest level in the last 18-24 months. Because cryptocurrencies are significantly cheaper right now than they used to be, people who still have Bitcoin would have to hold on to it and others would have to start buying it again, causing the value to go back up. Via: FirstPost