If you are a crypto enthusiast, then you have probably noticed that the crypto market is crashing. It could be the fluctuating prices that are seen on many cryptocurrencies or the decline in investments in cryptocurrencies. And speaking of declining crypto investments, crypto investments have just shifted from close to 1.10 trillion to a whopping 1.02 trillion. But you know what, let’s save that for later and focus on why crypto is crashing.
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The crash of the crypto market is not something that is entirely new. It is something that’s bound to happen and has happened in recent years. However, most crypto newbies are calling this the end of crypto which honestly I think is not the case. Crypto has seen worse days, to be honest. Remember in 2014 when it crashed due to the Mt Gox Exchange? You might think that that was a long time ago, so let’s look at something more recent. In 2018, the prices of bitcoins fell by almost 80 %. But guess what, all these did not lead to the dismissal of cryptocurrencies.
The crash of the crypto market is something that can be salvaged with just a few changes in the market. If you have been curious to know what really caused the crypto market to go down, here are a few options that could help you have a little faith in your crypto investment.
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Why crypto is crashing
Here are some of the reasons why bitcoins and other altcoins are having a hard time on the market.
1. High inflation levels throughout the world
I’m sure everyone has already felt the pinch of the high cost of living. It could be the increases in prices of basic commodities or the sudden rise of gas prices throughout the world. Either way, something is up and it is affecting the crypto markets. So what exactly is inflation and how is it affecting the crypto market?
Inflation is the decreasing value of currency which increases the prices of goods. If you are not aware you should probably know that most people use the US dollar to make purchases and investments in cryptocurrencies. However, this has not worked in favor of crypto especially after the United Federal reserve announced a 0.5 % hike in interests. Remember, the 0.5% in interest is the highest interest rate that has been seen in a span of two years. Moreover, the Us dollar buying power fell in March of 2020 and took another drop just as the year was ending.
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Over the years, the value of the US dollar has reduced to close to 85 %. You would think that this decline in power would work in favor of cryptocurrencies but clearly, things are different. Us dollar purchasing power against bitcoins has been on an upward trend which puts the bitcoins inflation story at a risk. This inflation level led to a drop of 40 % when it comes to bitcoins while the prices of other altcoins such as Ethereum dropped by nearly 50% at the end of June.
What next for cryptocurrency investors?
With different crypto prices present in the market, most cryptocurrency investors are left to wonder if the inflation levels will have an impact on their investments. According to some financial experts, this could be the case . However, they link this to the volatile nature of cryptocurrencies and how it is still a young asset. Crypto is already such a young asset that has just been introduced to the market. This will make it hard to know just how bad it can be hit by inflation.
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But all hope is not lost, there are hopes that bitcoin and other altcoins could be a good edge against inflation once its able to establish themselves. As long as cryptocurrencies get a good bearing on the world’s market, then they might just survive this passing storm in the name of inflation.
2. The market volatility of cryptocurrencies
Another reason why the crypto market may be crashing is the market volatility of cryptocurrencies. Market volatility is a natural phenomenon that is bound to happen to any type of asset present in the market. Bitcoins and other altcoins have not been left behind which has led to the decline in the crypto market. We might look at the market volatility by looking at a comparison between the crypto market against other traditional financial markets.
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What is market volatility?
Market volatility refers to changes in the price of an asset in the market. The phenomenon has its own set of advantages and disadvantages depending on the direction it takes. However, extreme market volatility has a negative connotation. and that might be the case with most cryptocurrencies. When market prices shift between extreme highs and lows, investors have a field day. However, this causes more price volatility and affects the prices of different cryptocurrencies.
The volatile nature of cryptocurrencies is however in its own league. How you might ask? Well for starters, there are no indices that can be used to measure its price volatility. Let us look at a case scenario to help you get a better understanding of what we mean when it comes to price volatility. In 2016, Bitcoin was the talk of the town and its price rose by close to 125%. The increase in price did not stop there and in 2017 it took an even higher peak of more than 2000%. The price range has since been rising up until 2021 when it took a bit of a left turn.
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It will take a bit of time before cryptocurrencies are able to find their footing in the world. This means that price volatility is something that is to be expected and might be seen for quite some time. Moreover, this could be one of the reasons why the crypto market is crashing.
3. Celsius decision to pause all withdrawals of crypto
Celsius is basically a bank that has a higher interest rate in comparison to other banks. It however lacks any government oversight and is probably the largest crypto lending space in the world. Celsius has been the saving grace of most crypto enthusiasts with up to 12$ billion in assets when dealing with cryptocurrencies. It has also lent out up to 8$ billion to clients as of May this year. However, the company has now decided that it would pause all withdrawals which caused a shift in the crypto market.
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This was just before the $60 billion meltdowns of TerraUSD just last month. Celsius decided to halt all withdrawals, swaps, and transfers of cryptocurrencies as a way to curb a “run on the bank” earlier last week. The company in a statement said that the move was to establish liquidity and restore all the withdrawals as soon as possible. However, the move was not taken very lightly and most legislators have raised concerns about the need to regulate the Crypto market especially stablecoins such as TerraUSD.
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The crash of the cryptocurrencies may be a passing storm, for now, however, it will take some time before its stability can be felt again.
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