In the span of a few months, the cryptocurrency market has gone from boom to bust. Bitcoin, Ethereum and most other altcoins have lost more than 60% of their value since their peaks in November. And the Terra Luna meltdown has shaken even the most jaded investors to their core.
So what happened? Why did the cryptocurrency bubble burst? And most importantly, is this the end for crypto? In this article, we will take a closer look at the latest cryptocurrency crash and try to answer these questions.
Global instability
The world is and continues to be an extremely violent, unequal and unstable place and things don’t appear to be improving. It is an environment that does not lend itself to confidence in traditional markets let alone something as exotic as cryptocurrency.
Global instability is the main reason for the crypto crash but there are other reasons as well.
The first reason for the crash is quite simple: the market got ahead of itself. In November 2021, Bitcoin and Ethereum were rising to all time highs, with daily gains of 20% or more becoming commonplace.
This attracted a lot of new investors to the space who were looking to make quick profits. However, as prices reached dizzying heights, it became clear that the market was in bubble territory. People that had criticized multimillion dollar prices for digital images of cartoon (bored or otherwise) apes suddenly didn’t seem that crazy.
The domino effect
Investors started getting worried that the market would correct soon and began selling off their assets. This caused a domino effect and prices quickly began crashing across the board-and accelerated further with the collapse of Terra Luna.
The second reason for the crash is that there has been a growing crackdown on cryptocurrency exchanges in China and South Korea. These two countries have been major players in the crypto space and account for a large portion of the trading volume.
However, both governments have been cracking down on exchanges in recent months, with China even going so far as to ban them outright-while at the same time approving Bitcoin as a digital asset.
This has caused a lot of uncertainty and confusion among investors and has led to a decrease in trading activity.
The third reason or rather reasons are perhaps the easiest to understand. Rampant inflation, rising fuel costs, political and social instability in the United States, Covid fear and the continued Russian aggression in Ukraine, along with falling stock prices on Wall Street have all converged to hammer the crypto market mercilessly.
Winter is coming. Maybe.
A crypto winter may have set in before the official start of summer and it seems like the people losing the most money are those who are actually holding cryptocurrencies. This has led to a decrease in demand for crypto assets, which has put further downward pressure on prices.
So where does this leave us? Is crypto dead?
Bear this in mind
It’s hard to say. The market definitely appears to be in a bearish phase at the moment. However, it’s important to remember that the cryptocurrency market is still in its infancy and is therefore highly volatile. So while the current crash may seem like the end of the world, it’s important to keep things in perspective. Crypto has seen crashes before and it has always bounced back-especially bitcoin and ethereum. Yet, this time somehow feels different. Perhaps because the rest of the world seems to be falling apart at the same time.
What about Bitcoin?
The warning sign for cryptocurrencies is not so much that they have crashed – Bitcoin’s down 50% from its peak last November- but rather; the market has lost its luster. From experience with previous crashes, we know how quickly bargain hunters will rush into any down currency and send prices shooting up again only to see them drop dramatically later on – all without much speculation about what might happen next, other than to repeat the cycle.
Final thoughts
It’s also worth noting that the current crash has been much less severe than the one in 2018. So while it may take some time for the market to recover, we could see a resurgence in crypto prices later this year. In the meantime, we will just have to wait and see what happens next.
Thanks for reading! We hope this article was helpful in understanding this latest cryptocurrency crash and will perhaps encourage you to learn more.
Please feel free to leave any comments or questions below.