Why is Crypto is crashing?
Bitcoin and other cryptocurrencies have been plummeting since the beginning of May, with several reaching zero. Bitcoin is barely a few hundred dollars above $20,000 as of today, June 17th, 2022, less than half of what it was worth two months ago. Many other cryptocurrencies, including Ethereum, Dogecoin, and Cardona, have met the same fate. So, how did the cryptocurrency market lose almost a trillion dollars in just a few weeks? Several factors have contributed to this, and we will discuss them in this blog.
Unless you’ve been living under a rock, you’re well aware that most nations are experiencing significant inflation rates of up to 7%, with the world average around 5%. This means that the majority of individuals have less money to invest, gamble, or save. During these times, investors, too, hold back funds or opt-out of riskier markets like cryptocurrency. The rising inflation rate is also influenced by geopolitics and the energy crises.
Cryptocurrency has also experienced its fair of drama over the last couple of weeks that has made crypto prices plummet even further.
The Terra blockchain stablecoin lost its peg to the US dollar at the beginning of May 2022, resulting in the collapse of the Luna cryptocurrency, the blockchain’s native cryptocurrency. It was difficult for the stablecoin to restore its peg due to falling Bitcoin prices and a loss of investor trust that led to the withdrawal. A proposal to bring Terra 2.0 back was made and passed, although it still faces challenges in terms of acceptance and value.
Celsius, a crypto lending platform. Paused withdrawals, swaps, and transfers of crypto citing extreme market conditions. The move hurt an already struggling market with many crypto users terming the move anti-crypto. Celsius, which is one of the leading DeFi platforms has already lost half of its assets to the crypto carnage. Such events have not only eroded the confidence of investors but also raised the concerns of regulators.
Stock Market Crash
If you zoom out you will realize all these reasons are related. The hiking of interest rates has led to investors cashing out to avoid losses. This also triggered selling in crypto markets.
Many financial analysts had predicted the fall of crypto in the Second Quarter of 2022. Well, the crash is here. The is no particular event or action that can be credited for the crashing of the crypto market. Several factors in and out of crypto have contributed to this. Inflation, crypto dramas, regulations, and stock market crash have all played their role in this.