Choose a major bitcoin that has remained relatively stable, like bitcoinEthereum etc and you will see that they are all currently trading in the red.
Anyone whose portfolio of investments was extensive based on cryptocurrency just gotta panic. Not only new investors but also long-term investors are feeling the strain of this crash.
The global crypto market shrank to $983.72 billion from $1.02 trillion, down 11 percent since Monday. The global cryptocurrency market cap has fallen by over $2 trillion after hitting the $3 trillion mark in November last year. The price of almost all top coins is now worth half or even less than their all-time highs.
At the time of writing this article, Bitcoin was trading at $21,042. The previous day, June 15, it was $20,407, the lowest in the last 18 months.
Ethereum, or Eth, which was trading above $2,000 just a few months ago, traded at $1,040 on June 15th. Bitcoin alone fell 67 percent from its peak.
But what led to this crash? Shouldn’t crypto be immune to recessions, shouldn’t it protect investors when “the mainstream economy fails”?
Well, let’s take a look at why cryptocurrencies, especially the big two, bitcoin and eth, are crashing.
Crash of two stablecoins
Last month, two unremarkable but very significant stablecoins, Luna and Terra, crashed sharply. Before the crash, Terra had a market cap of over $18 billion.
Stablecoins are believed to be stable because they are priced like the US dollar or other fiat currency and exist primarily to allow crypto investors to easily enter and exit fiat without a third party (in this case a bank) which authorizes transactions.
When Luna crashed 99.90 percent, Terraform Labs (the company behind Terra) tried to sell all of their bitcoins to lock the price at $1, but they couldn’t. As a result, over $40 billion was wiped out of the crypto market. If a cryptocurrency that was pegged to the dollar and was meant to be stable could crash that badly, investors felt that anything could happen to any other cryptocurrency.
The falling stock market
As much as crypto newbies would like to believe otherwise, the crypto market is connected to the stock market. When a downtrend is observed in the stock market, it is reflected in the crypto market almost immediately.
Because investor behavior, consumer behavior, and a number of important factors that affect the stock market also affect the crypto market. With the stock market oscillating for some time and tech stocks plummeting more than a quarter, it was only a matter of time before cryptos crashed.
Major economies are raising interest rates
Thanks to the two reasons above, people were becoming increasingly skeptical about cryptocurrencies this month anyway.
Indeed, due to inflation and a looming recession after most major economies had to adjust their interest rates, a vast majority of people around the world do not have the money to invest in a volatile asset like crypto.
And because most crypto exchanges mirror what happens in the American stock market when US stock markets plummeted due to a US Federal Reserve rate hike, cryptocurrencies followed suit.
Crypto exchange gimmicks
All these situations cause people to lose confidence in cryptos. To make matters worse, Binance, the largest global crypto exchange, and Celsius, one of the world’s largest crypto lenders, paused all Bitcoin withdrawals for a few hours.
While Binance claimed that this happened due to a deadlocked transaction, Celsius claims that they had to pause lending due to extreme market conditions.
Additionally, Coinbase, one of the world’s largest crypto exchanges, laid off 18 percent, or 1,100 of its employees.
All of this caused investors to panic and start selling Bitcoin and Eth, lowering their value.
market corrections
Finally, there is the concept of market corrections. Market corrections usually come in waves. Due to the global lockdown, many people have invested in cryptocurrencies for the first time. Of course, coins like bitcoin and eth rose in value and became exaggerated.
However, every time the value increases due to oversubscription in cryptos, the market corrects itself.
In this process there is a bottom or period when the market falls. Under normal circumstances, the jump is not that bad. However, due to the above reasons, Bitcoin and Eth crashed a bit more than normal this time. In a few weeks or months things should return to normal, investment experts believe.
What now?
People who have liquidity 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 point in the last 18-24 months.
Since crypto is significantly cheaper right now than it used to be, people who still have bitcoin would have to hold onto it, and others would have to buy it back, driving the value back up.
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