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Why Is Crypto Crashing: There can be no going back to the highly leveraged, partially reserved cryptocurrency system whose illusory riches are now giving way to real losses, our columnist declares.
The decentralized finance (DeFi)/centralized finance (CeFi) bubble is bursting, the non-fungible token (NFT) craze is drying up, algorithmic stablecoins are collapsing, and crypto lenders are going bankrupt. The crypto is in a bear market.
Inevitably, crypto skeptics call it “the end of crypto”. But we have seen this kind of correction before. Several times, in fact. In 2014, the price of bitcoin crashed when the Mt. Gox stock exchange collapsed. And in 2018, bitcoin’s price plummeted 80% as hundreds of “initial coin offerings” (ICOs) crashed and burned.
Either way, the market eventually recovered and crypto prices rose more than before. Even though bitcoin has lost 70% of its dollar value since last November, it is still worth more than its December 2017 peak. So why not HODL and wait for the market to recover?
CoinDesk columnist Frances Coppola is a freelance writer and speaker on banking, finance, and economics. His book, “The Case for People’s Quantitative Easing,” explains how modern money creation and quantitative easing work, and advocates “helicopter money” to help economies pull out of recession.
As I write this, Bitcoin is trading at $21,974 (£18,000). It has fallen 25% in the past five days alone, to its lowest value in 18 months. Its peak of nearly $70,000 in November seems like an eternity.
Experts say this is due to the wider global climate. It’s not just in the crypto world that things aren’t going well.
Recession is imminent, inflation is skyrocketing, interest rates are rising and the cost of living is weighing heavily. Stock markets are also faltering, with the US S&P 500 now in a bear market (down 20% from its recent peak).
As a result, even large investors are less free with their money. And many mainstream investors — not wealthy hedge fund or corporate owners, but people like you and me — have less to invest in anything, period.
For many, investing in something as volatile and unpredictable as cryptocurrency seems like too much of a risk in these times.
It is not regulated or protected by financial authorities, so if you use your savings to invest in it and it loses value, or you lose access to your crypto wallet, your money is gone.
Last month, two much more low-key but nonetheless important coins crashed – and it was a big hit to confidence in the market as a whole.
As a result, people are increasingly deciding to sell.
The more people sell, the less Bitcoin is worth, because that’s how it works – its value is tied to its desirability. This has the effect of increasing the number of people who sell, as they may see the value go down…and the cycle continues.
Unlike other more traditional assets, Bitcoin has no intrinsic value to underpin it – there are no bricks and mortar, income streams or underlying activity, says Katie Martin , editor-in-chief of FT Markets.
“The price is only and purely what people are willing to buy it from you for,” she tells me.
“That’s when it gets scary for people because, if enough people are heading for the exit, there’s no floor. There’s nothing to stop it from getting out. trade at $10,000 tomorrow, if enough people give up or are forced to sell.”
So that’s the already challenging backdrop for Bitcoin – and then, the last 24 hours have seen these developments:
The first two caused panic. Imagine if you suddenly couldn’t withdraw money from your bank, or if you found out that other people couldn’t. You’d be at the nearest ATM. With everyone else, in record time, and that in itself would create more upset and more panic.
In a nutshell – to stabilize it. People who still have Bitcoin should hold onto it and others should start buying it again. It has happened before.
Crypto fans will tell you that now is a great time to buy because it’s cheap – and then you have to sit and watch it turn the corner. That’s how it’s always worked.
One of them tweeted me earlier: “The pump will always arrive.”
Compelling get-rich-quick stories and high-profile celebrity endorsements attract new money.
“Bitcoin faced another major correction, falling to nearly $25,000, the lowest in over 5 months. Interestingly, the Dollar Index (DXY) is also at its 6-month high. Gaining 2 % in the past day alone, driving equity and crypto markets lower On the daily timeframe. BTC trend broke below the long triangle pattern Immediate and key support is expected at 24,000 $.RSI fell below 30 as Bitcoin entered the oversold zone,” WazirX Trade Desk analysts shared in a note.
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