Bitcoin, the world’s most famous and thought to be the most reliable cryptocurrency, collapsed on Saturday to its lowest level in a year and a half and is now worth less than $20,000. At one point, it was trading at $18,993, dropping in value by 59%. In the last five days alone, the drop has been 25%. However, bitcoin’s rivals in the cryptocurrency market are not having their best days: ether (aka ethereum) lost 73%.
The fall of the cryptocurrency market was facilitated by the fact that Celsius, one of the leading cryptocurrency lending companies, froze depositors’ assets and banned the transfer of cryptocurrencies between accounts.
In an additional blow, a number of cryptocurrency companies, such as Coinbase Global Inc, Gemini and Blockfi, announced the layoff of thousands of employees as investors are actively getting rid of risky assets.
And the sad part for investors is that the situation doesn’t promise to straighten out anytime soon.
Why today, and why now?
Experts always know how to explain the situation by a fait accompli.
According to them, it’s not just about cryptocurrency, but about the global situation as a whole. We are witnessing a global economic downturn, caused by long months of pandemic, and now also the war in Ukraine. Inflation is rising, interest rates are rising, and living standards are falling.
As a result, big investors no longer have the freedom to dispose of their money, and many ordinary investors have nothing to invest. And even if there were, who would want to take risks with such unpredictable assets as cryptocurrency, which is not protected in any way and is not regulated by financial authorities.
Two lesser-known cryptocurrencies, TerraUSD and Terra Luna, which collapsed in May, did not add confidence to the cryptocurrency market either, and investors began to get rid of their cryptocurrency assets. In line with the domino effect, the faster a cryptocurrency sold off, the more it lost value. Bitcoin, which, unlike traditional assets like real estate or established businesses, is not backed by any tangible assets, has also been affected.
Well, in the last 24 hours, events began to develop rapidly:
- Binance, the world’s largest cryptocurrency exchange, banned all bitcoin transactions for several hours. Officially, this was explained by the fact that one of the transactions had stalled, but few people believed it.
- Celsius, a cryptocurrency lending company, did the same, only the reason cited was not technical difficulties, but extraordinary conditions in the market.”
- Finally, crypto-exchange Coinbase announced the dismissal of 18% of its employees due to a drop in demand for its services (“cryptozymes,” as the company put it)
The panic caused by these events (and what else can you call the state of investors who found that they have lost access to their assets, even temporarily) has led to a further fall in the cryptocurrency rate, which can already be fully called a collapse.
Is there any hope?
Theoretically, yes, but for that those who have not yet got rid of cryptocurrency do not need to part with it, other investors should start buying bitcoins, and this has happened before.
Moreover, cryptocurrency connoisseurs will tell you that right now, probably at its lowest point of decline, it is the right time to buy bitcoins and then just sit back and wait for the situation to straighten out and bitcoin to gain strength again.
Social networks are full of stories about the rapid enrichment of those who did not lose faith in the cryptocurrency, and the love for bitcoins of many celebrities (the same Elon Musk repeatedly admitted to it, and his company Tesla last year invested a billion and a half dollars in bitcoins) attracts new funds to them.
However, most financial advisors warn that one should be very careful, and only the most courageous investors should take such risks.
However, when Hollywood star Matt Damon gave a speech in October 2021 in support of cryptocurrencies with the slogan “Good Luck Loves the Brave,” it was watched by 28 million viewers, among whom there must have been many such brave people. I wonder how today, when cryptocurrency has fallen in price three times, how these brave people evaluate such financial advice.
What is causing the downturn in the cryptocurrency markets?
Have you ever wondered what causes cryptocurrency to break price records one day and fall to the bottom of the cryptocurrency market the next? The reasons are different for each project. But there are commonalities that can help prepare for this event.
Bitcoin’s historical declines
The most mature asset among the various cryptocurrencies is bitcoin. 2011 was the first “golden period” for bitcoin, when its price rose from $2 to $30, reaching parity with an ounce of silver. Unfortunately, it was also a year of tremendous failure, causing bitcoin to fall by 99%.
An indirect culprit for the fall was the Mount Gox exchange – the largest cryptocurrency exchange in the world at the time – which admitted that 25,000 bitcoins had been hacked and stolen from nearly 500 customer accounts. At the time, the losses were estimated at only $400,000, but the bitcoin market was still young and unknown, so any attack erupted into mass panic.
In April 2013, MT GOX was the culprit again. Investors were fascinated by the cryptocurrency. The mainstream media created a frenzy around the still-new asset. Then trading became so intense that the key cryptocurrency exchange, MT GOX, was unable to handle the volume of cryptocurrency exchanges, leading to an outage. The vulnerability was discovered by hackers who attacked at the most inopportune time for MT GOX. Completely unprepared, the exchange was forced to stop trading, causing prices to drop from $260 to $50.
December 2017 was a landmark year in the history of bitcoin. The cryptocurrency market became known to the general public, many new interesting projects appeared. Bitcoin rose to an unbelievable $20,000 at that time! Many of those who had long held BTC and did not sell them made a profitable exchange of cryptocurrency, particularly in Russia. Then many managed to buy cryptocurrency profitably.
Many skeptics of bitcoin and cryptocurrencies at the time talked about a speculative bubble that could burst at any moment, devastating the investment portfolios of many investors around the world. Unfortunately, the last attempt to break through the $20,000 mark came in the first half of January 2018, after which the rate fell continuously, stopping only a month later at $7,600.
Events that could potentially have had a huge impact on breaking the bullish trend were the growing news of a possible bitcoin ban in Korea, China and Japan.
Three years later, in December 2020, bitcoin hit a record price. Investors were not going to stop there. There was more and more positive news about cryptocurrencies – PayPal was accepting BTC, Tesla and MicroStrategy were buying huge amounts of cryptocurrency. The market was gripped by euphoria, and rumors of a storm of the $100,000 level were growing.
Unfortunately, a breakout occurred on May 8, causing bitcoin to fall from a record high of $60,000 to $29,800 in just one month. Skeptics again heralded the end of cryptocurrencies, but bitcoin bounced back from the $30,000 mark, attempting yet another assault on the $50,000 psychological threshold.
What caused the sharp correction in the market?
The recent trend reversal was caused by a superposition of several negative events. The first of them was Tesla’s refusal to use bitcoin as a means of payment because of bitcoin’s potentially harmful impact on the environment. Elon Musk commented on BTC networks’ need for energy – which caused the entire market to fall.
Another factor was China, which again announced a ban on bitcoin. The new rumors caused an exodus of Chinese miners, who took more than half of the Bitcoin network’s processing power with them to move.
All of these events led to a more than two-fold correction of the BTC exchange rate. Fortunately, this situation was not long-term.
Why are bitcoin and cryptocurrencies falling?
You know the reasons behind the biggest price corrections in Bitcoin history. It’s time to get into the details that may convince investors to get out of the market.
Unfavorable regulation is one of the most significant factors that can bring down the entire cryptocurrency market. Remember what overwhelmed investor sentiment in May 2021? The news of the restrictions imposed on bitcoin in China. Imagine what would happen to the market if restrictions were imposed in North America or Europe.
In 2021, we witnessed the largest theft of funds in history – more than $600 million was stolen from a Chinese project – a larger theft in history was stolen only by Qusay Hussein, who withdrew more than $1 billion from the central bank.
Whales are investors who own significant stakes in a particular cryptocurrency. By overselling stakes, they are able to sink the market quickly, which can cause the price to drop instantly.
Smaller investors are watching the movements of whales and keeping a close eye on the movement of their funds. A key indicator of whether to prepare for a price drop is the transfer of virtual coins from private wallets to exchanges, where a massive placement of tokens is likely to occur.
The cryptocurrency community is ready for possible attempts to drown the market. There are numerous websites, Twitter and Telegram bots that report on whale moves.
Although small projects with small market capitalizations are the most vulnerable to whale attacks, even giants like Bitcoin and Ethereum are susceptible to such actions. To understand how things work, read cryptocurrency reviews.
As the expert clarified, the head of FTX is Sam Bankman-Fried, who in the cryptocurrency universe is associated with a lot of manipulation, which led not only to strong price movements, but also the collapse of a number of projects.
“He also owns perhaps the most iconic fund in the industry, Alameda, which has been involved in a large number of initial coin offerings. It’s also worth noting the companies’ high influence on blockchain competitor Solana and the highly ambitious plans for comprehensive market dominance by Bankman-Fried himself, who lobbied for his interests in Washington,” the analyst said.
According to Bykov, FTX problems began during the “chess move” the head of Binance Changpen Zhao – he published on his Twitter statement about the desire to withdraw from investments related to the exchange and the sale of a large amount of tokens platform (FTT) in the market under the pretext of unscrupulous behavior of Bankman-Fried.
“Preliminarily in the info-field appeared some research about the possible financial problems of FTX, which had an additional impact on investors, who rushed to dump the cryptocurrency exchange and withdraw their funds from accounts,” – explained the expert.
Bykov clarified that as a result, overnight, November 8, token FTX crashed from $22 to $4. At the same time Zhao again got in touch on Twitter and said that he was contacted by representatives of FTX with a request to help with the current situation. As a result, a full buyout of the troubled crypto exchange was announced.
It turned out that FTX transferred customers’ money to the fund Alameda, where they were used for speculation, and when users massively wanted to withdraw their savings, it turned out that the processing of applications is simply impossible, added the analyst.
In addition, he clarified that Binance only bought out the exchange FTX, which maintains claims to Alameda for $ 8 billion, which means that the need for their return remains.
“It is quite obvious that these funds are now spread over assets and they have to be sold first, as a result of which literally all the coins will have to suffer, because Alameda’s portfolio is of unbelievable scale. Recall that all of this is happening during a serious market-wide correction, and this only adds to the negative effect. We expect that bitcoin may well in the foreseeable future to fall in price to $15 thousand,” – concluded Bykov.