The cryptocurrency world has been in turmoil in the past few days. With a perfect storm caused by falling equity markets, geopolitical tensions and a protracted pandemic, it must be one of the toughest times for investors, and especially for crypto investors.
Let’s look at the figures. BitcoinThe world’s largest cryptocurrency has returned to its January 2021 level of $27,194 (as of May 12, 2022) and has lost more than half its value since reaching its peak of $68,990 in November 2021.
world’s second largest cryptocurrency By market cap, Ether is down 23% to $1,841.12. Other cryptocurrencies like XRP is down 34%, Solana is down 38%, Cardano is down 35%, Stellar is down 29%, Avalanche is down 39%, Polkadot 32% and Terra USD is down 27. ,
Overall, the global crypto market has lost nearly $830 billion in market capitalization within six weeks. Out of all this, one question remains unanswered – where does the money stop and how many more losses can investors take?
Unfortunately, the nature of the problems surrounding the crash of crypto coins makes it difficult to predict the correct response to this legitimate question. However, there is a bitter truth here, the potential of further downside is more in the crypto market than recovery. To know why there are some problems in crypto as well as global equity market. Notably, it is difficult to predict when these problems may end in a bid to reverse the bloodshed on crypto prices.
interest rate hike
Ever since the US raised interest rates to contain its highest inflation level in four decades, global markets have been rocked. RBI recently raised rates in India too, leaving the rupee in freefall. The sell-off in stocks across the globe has also badly affected the crypto market.
Russia – Ukraine War
The war in Ukraine refuses to show any signs of slowing down. Meanwhile, prices of essential commodities like wheat exported by Ukraine are expected to rise as the country struggles for its survival. Supply chain issues are also in the limelight due to war. While no one knows when the war may end, things are not looking good for global growth in the wake of the pandemic being over, making it difficult for crypto assets to find growth avenues.
UST stablecoin collapse
One of the major reasons for the current sell-off in the crypto market is a stablecoin – TeraUSD (UST). Stablecoins are tied to fiat currencies and are considered more flexible than volatile cryptocurrencies.
The UST has recently been ‘deprecated’ from the US dollar and instead of maintaining its value at par with the US dollar with which it is pegged, the stablecoin is quoting a price of $0.45 – a whopping 55 percent. decline. This has had a direct impact on Terra Luna (LUNA), with which it has fallen by a whopping 97% from its all-time high of $118 seen in April to just $0.37. The UST crisis has spread through the crypto industry and caused the prices of almost all well-known coins to drop significantly.
What should investors do? This may be the hardest thing to do but the best solution is to simply hodl your property. Don’t sell them in a panic, no matter how frightening the picture is. Remember that the value of crypto assets has multiplied during bull rallies and there is no reason why this should not happen again.
The world needs to see some positive signs coming out of nowhere to invest and increase the value of crypto assets. The phenomenal growth of NFTs along with the growing use cases of crypto assets and blockchain technology (cricketer Rohit Sharma announced his personal NFT fall on the day crypto assets fell worldwide) also makes a compelling case. Just sit tight and wait for the tide to turn.
For those looking to invest in cryptocurrencies, I suggest waiting for a while till the bottom comes out. You don’t want to invest in a new technology and watch its value go down even further. Remember to keep a watchful eye for positive signals and follow global news and equity markets to gauge the mood of the crypto world as well. Back to the question of where the buck stops, the simple (and complicated) answer is that it is not, at least not in the near future.
Arijit Mukherjee, founder and CEO of Eunometa