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What Is Happening To Crypto

Bitcoin Has Gone: What’s Happening To The Crypto Market

WHAT IS HAPPENING TO THE CRYPTO MARKET?

Everyone agrees that the dramatic fall in digital currencies is not “another crisis”, but even consensus that it is not really the end of the blockchain story, on the contrary: it may even be a necessary step on the road to a regulation that will increase investor confidence.

In the meantime, we need to invest in education as well.

Panel of Experts

Wednesday, 22 June, 2022, 10:36 Updated: 10:56

    Why Crypto Market Is Falling

    An on-going sell-off was seen over the weekend, as BTC fell to the $24,000 level. The crypto Fear and Greed Index still showed a sentiment of extreme fear this indicated that most investors were still extremely bearish, Darshan Bathija, CEO and Co-Founder of crypto exchange Vauld said.

    The recent inflation numbers seen in the US has had a negative effect on most markets. Most investors will be keenly looking at the U.S. Federal Open Market Committee meeting slated for June 14 and 15th. An interest hike by the Fed is already priced in however most investors worry that unless inflation numbers start dropping soon, the Fed will likely have to tighten reigns at a faster pace than anticipated, he added.

    Who Are The Winners And Losers

    At one level, the answer is simple: the winners are people who sold their cryptocurrency holdings in early April, and the losers are the people who they sold them to. Its a common enough occurrence in the sector that theres even a rallying cry for the ones left standing when the music stops: HODL an implicit promise that the boom times will come round again and only those who dont panic and sell at the bottom will make a profit in the next phase of the cycle.

    But there are distinctions. Those who held blue-chip cryptocurrencies such as bitcoin and ethereum have only lost about half their value from the peak, while those who bought shitcoins low-effort projects where almost everyone involved acknowledges that the goal is simply to buy low, sell high, and leave someone else picking up the pieces have lost a lot more. Similarly, those who managed to cash out into one of the stablecoins that survived the turmoil are in almost as good a position as those who managed to turn their crypto into cash.

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    The Events That Roiled The Crypto Market

    One reason for cryptos horrendous performance of late is volatility among so-called stablecoins. Stablecoins are digital assets. Most derive their value from being fully backed by reserves .

    For crypto investors, they provide a way to deal with crypto volatility. Thats because they are usually relatively price-stable digital assets.

    But others are what youd call algorithmic tokens. This means they derive their value from computer code. These stablecoins need constant market activity to keep their dollar peg.

    Unfortunately, algorithmic dollar pegs dont always hold, causing investors to panic and sell off their coins.

    This is what happened last month, when one such stablecoin called TerraUSD went up in algorithmic smoke. The price of UST fell from $1 on May 8 to around $0.18 on May 14.

    The UST debacle caused fears for the stablecoin space as a whole. And this had a knock-on effect on the rest of the crypto market.

    Then, crypto lending platform Celsius made an announcement that further rocked the crypto market.

    On June 12, it stated that it was suspending all withdrawals on its platform. This essentially froze up to $8 billion in deposits.

    This added fuel to the crypto bonfire.

    Drivers Of The Crypto Crash

    What on Earth is Happening With This Crypto?

    Fed interest rate hikes The Federal Reserve raised interest rates half a percentage point last week, and Wall Street responded with a stock slump. Crypto markets have followed suit shedding more than 10% or almost $200 billion over the past week.

    Edward Moya, the senior market analyst at Oanda, noted that crypto markets had been highly correlated to indexes such as the Nasdaq. He observed that the tech-focused index is down 21% this year, while Bitcoin is down 22%. Moya added that confidence is low, and the asset has been mainly consolidating for most of this year:

    Bitcoin is really stuck in a sideways news cycle where youre just waiting for it to be calm on Wall Street, and then youll see more people confident in investing. I still think theres a lot of long-term potential value here, but you have to be able to stomach this volatility.

    Institutional interest cooling The year 2021 was extremely bullish for institutional crypto investment, but that has not carried through to 2022. Big names such as Tesla, MicroStrategy, El Salvador, and several payment platforms got into crypto, driving the momentum and buying pressure. U.S. regulators even allowed the first Bitcoin futures exchange-traded funds to trade which was also bullish.

    This year has been a lot more subdued, and according to CoinShares, there have been four weeks in a row of institutional crypto fund outflows. Moya added that corporate and institutional investors are in a wait and see mode,

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    Stablecoin Risks In Focus

    Now lets talk about the elephant in the room: stablecoins.

    One of the big culprits behind this weeks slide lower are the stablecoins, and crypto investors should continue to monitor instability in this corner of the market, particularly UST and LUNA.

    Experts critical of the Terra ecosystem say the mechanism behind TerraUSD was fundamentally flawed, and dont see its unraveling as much of a surprise. In efforts to save the stablecoin, the Luna Foundation Guard , the nonprofit that supports the Terra network, moved all its reserves on Bitcoin exchanges to protect USTs dollar peg. LFGs bitcoin reserve balance is now zero.

    The weak sentiment has trickled down to Tether , the original stablecoin. Tether dipped to $0.97 during Asian trading hours, briefly losing its peg to the U.S. dollar, but it has since rebounded to $0.99. Being shy even a penny of its dollar peg is still worrying.

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    What We Know So Far

    Bitcoin, the largest and most well-known of them all, broke an important technical support when it traded below $20,000 . That valuation was its previous cycles all-time high, and the level hadnt been breached since late 2020.

    More broadly, the sharp drawdowns in cryptos have had cascading effects on the entire blockchain universe. Last week alone, a leading crypto lending platform halted withdrawals, while a prominent crypto hedge fund appeared to be facing insolvency.

    What If Youre Interested In Crypto But Havent Yet Invested

    Crypto Crash! what is happening with the crypto market? Sam Bradbury

    Yangs set it and forget it approach to crypto reflects his philosophy for investing in the traditional stock market, but some experts feel cryptocurrency is too different from traditional investments to draw any historical comparisons. Thats why AShira Nelson of Savvy Girl Money is staying well away.

    Nelson primarily invests in low-cost index funds because I can see history on that, she says. The newness of cryptocurrency and lack of trackable data make her wary of these crazy swings.

    Potential investors looking to buy the dip should understand that fluctuations are par for the course, and be prepared for this kind of volatility going forward. Even if you invest now, with prices relatively low, be prepared for them to fall even more. Again, only put in what youre comfortable with losing after youve covered other financial priorities, like emergency savings and more traditional retirement funds.

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    How Did The Crypto Market Unravel

    Like so many things: gradually, then all at once. Take bitcoin, the original cryptocurrency, which is responsible for about a third of the value of the sector. The cost of a single bitcoin has been dropping slowly since the end of March, alongside a broader malaise in the technology sector.

    That makes sense: an investment in bitcoin is, in one regard, a bet on the possibility of further technological upheaval, just like the purchase of any other tech stock. With a rise in inflation choking off post-pandemic growth on both sides of the Atlantic, coupled with a vague sense that irrational exuberance had led to an overvaluing of tech in general over the past couple of years, the whole sector began dropping.

    And then, in early May, the dam broke. In a week, it dropped further than it had in the preceding month. The immediate cause was contagion from the catastrophic failure of another cryptocurrency project, called terra, which was once valued at more than $50bn and ended the week effectively worthless.

    As terra collapsed, so too did other cryptocurrencies. First, similar projects saw their values stumble, as investors feared they would follow then, the panic gripped the broader sector, and even comparatively blue-chip tokens, including bitcoin itself, tumbled.

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    What Happened To Luna Why Is That A Big Deal

    As the price of UST crashed, large luna holders cashed out, causing the supply of luna tokens to jump, and its price to crash. Luna lost 99% of its value Thursday.

    According to Bloomberg Intelligence, lunas sharp value decline looked like the worst day for a financial product ever seen and it prompted cryptocurrency exchanges to delist the coin, bringing its trade to a halt as there was no liquidity in the market.

    A possible reason for the severity of this crash is the particular pricing structure of the UST token, said Edward Moya, a senior market analyst at OANDA, a foreign exchange platform.

    The UST operates differently from other stablecoins, such as tether, which are backed by a government-backed currency or commercial papers. It is an algorithm-based stablecoin and uses a complicated method, with the help of luna, to ensure its value is maintained against the dollar.

    Most stablecoins will hold actual assets to function but the algorithmic solution that UST had was unable to handle the market volatility that we are seeing across the bond markets. This led to a widespread panic selling, Moya said.

    While terraUSDs price slumped to as low as 30 cents, the price of luna came crashing down to $0.00001655, from around $81 earlier this week. Terraform Labs said on Thursday evening that it halted the blockchain behind the cryptocurrencies and will come up with a plan to reconstitute it.

    Crypto Experiences A Broad Collapse

    What is happening to crypto?

    1-year change in the value of cryptocurrencies

    Prices are through 6 p.m. Eastern time on May 12.

    How long cryptos collapse might last is unclear. Cryptocurrency prices have typically rebounded from major losses, though in some cases it took several years to reach new heights.

    Its hard to say, Is this Lehman Brothers? said Charles Cascarilla, a founder of the blockchain company Paxos, referring to the financial services firm that went bankrupt at the start of the 2008 financial crisis. Were going to need some more time to figure it out. You cant respond at this type of speed.

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    Why Crypto Crashed And What Happens Next

    A May meltdown for the crypto market vaporized more than $1 trillion in value. Its a correction, a leading analyst says.

    · 8min read

    The crypto market took a swan dive off the high board in early May and left investors with the sting of a summer camp belly flop. A steep sell-off brought the price of bitcoin, the best known and most valuable cryptocurrency, to its lowest point since 2020. More than $300 billion in value was vaporized in an instant, and some $1 trillion in aggregate value was lost once the dust settled.

    News headlines were understandably apoplectic: Melt down, a perfect storm, like the dot-com crash, turmoil and panic. Crypto critics used the plunging prices to renew arguments that the category is digital snake oil. Supporters pointed to previous crashes as a demonstration of cryptos short-term volatility and long-term value.

    So whats really going on? Morning Brew asked Alkesh Shah to find out. As global head of crypto and digital assets strategy at Bank of America, its Shahs job to figure out whats happening for the second largest bank in the US. Heres what he had to say.

    Most Morning Brew readers saw the cryptocurrency market plummet in early May. Theres been a lot of anxiety sincenotable for an investment community that gave rise to the battle cry HODL, as in hold on for dear life. So I want to know: Do you believe this to be a correction to an inherently volatile market, or a referendum on a hype machine? Whats really happening?

    Is The Crypto Market Now Moving More Like The Stock Market

    The cryptocurrency market, like the stock market, has been seeing declines for months. It peaked in November, and with aggressive liquidity tightening signals by the Fed, all asset markets have since seen a correction.

    Sylvia Jablonski, chief executive and chief investment officer of Defiance ETFs, said the correlation with the Nasdaq is at 0.82, up from historical levels of below 0.5 . In similar terms, both traditional and stock markets are moving in similar directions more than ever, so there is a spillover effect in investor sentiment.

    Experts are observing a stronger correlation between cryptocurrency and tech stocks, which were among the hardest-hit stocks in the recent market slump.

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    Cryptocurrencies Melt Down In A Perfect Storm Of Fear And Panic

    A steep sell-off that gained momentum this week starkly illustrated the risks of the experimental and unregulated digital currencies.

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    SAN FRANCISCO The price of Bitcoin plunged to its lowest point since 2020. Coinbase, the large cryptocurrency exchange, tanked in value. A cryptocurrency that promoted itself as a stable means of exchange collapsed. And more than $300 billion was wiped out by a crash in cryptocurrency prices since Monday.

    The crypto world went into a full meltdown this week in a sell-off that graphically illustrated the risks of the experimental and unregulated digital currencies. Even as celebrities such as Kim Kardashian and tech moguls like Elon Musk have talked up crypto, the accelerating declines of virtual currencies like Bitcoin and Ether show that, in some cases, two years of financial gains can disappear overnight.

    The moment of panic amounted to the worst reset in cryptocurrencies since Bitcoin plummeted 80 percent in 2018. But this time, the falling prices have broader impact because more people and institutions hold the currencies. Critics said the collapse was long overdue, while some traders compared the alarm and fear to the start of the 2008 financial crisis.

    Will Bitcoin Go Up If The Stock Market Crashes

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    Not necessarily. Supporters of bitcoin see it as a diversifier in balanced portfolios, but it did no better than stocks at the start of the coronavirus pandemic. This is because investors panic-sold everything.

    In the first two weeks of March 2020, bitcoin went down over 40%.

    That was when we saw all equity markets take an aggressive leg down because of concerns about Covid-19, notes Rosie Bullard, partner and portfolio manager at James Hambro & Partners.

    So it wasnt exactly a store of value in an equity market reversal.

    If you look back to March of last year when we saw the market collapse, you didnt see bitcoin suddenly rally in that period.

    Rosie Bullard, partner and portfolio manager at James Hambro & Partners

    That said, how crypto assets perform during stock market falls will depend on why financial markets have collapsed.

    If it were an inflationary shock, such as we saw in 1974, most bitcoin investors believe it would provide protection.

    If you want to read more about the alternatives to bitcoin, check out are article here.

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