Since 2008, the crypto market has become increasingly popular, thanks to the emergence of Bitcoin. The first coins were worth very little to begin with, but as the years went on, crypto prices soared, with the value of one Bitcoin rising to a record high of $68,000 in 2021.
One of the reasons crypto investors choose to invest in cryptographic electronic money is to take power from the banks, as the crypto market is an alternative to traditional trading and investing. However, lately, the global crypto market has been tracking the stock market, which means it’s becoming more intertwined with macroeconomic factors.
Like the stock market, the crypto market is currently experiencing a crash, with token prices plummeting, companies like CoinBase and BlockFi laying off employees and coins including TerraUSD imploding. Many crypto investors are spooked by this, but some expect crypto markets to rise again in the future.
In this article, we delve into the crypto crash in more detail. We reveal how much cryptocurrency has fallen, explain the reasons for the crash and give some tips on investing in crypto.
How much has cryptocurrency fallen?
According to Coinmarketcap — a website which tracks crypto prices — the overall market value of cryptocurrency assets has fallen in recent months, from $3 trillion to less than $1 trillion.
In June 2022, cryptocurrency crashed even further, with the company’s data reporting crypto’s global market value as low as $840 billion.
Read on to find out more about the crypto crash, why it happened and whether the price of crypto is expected to rise again.
How much has Bitcoin fallen?
In June 2022, Bitcoin’s price fell below $18,000 for the first time since November 2020.
This means it has now lost more than 70 per cent of its value, since reaching its peak of more than $68,000 at the end of 2021.
While Bitcoin entered 2022 on a relatively high note, 2022 hasn’t been a great year for the most popular cryptocurrency, as it experienced a steady decline over the spring months. In March, for example, its value was around $42,800, dropping to $30,300 in May and then $22,200 in mid-June.
How much has Etherereum fallen?
Like Bitcoin, Ethereum has also been experiencing a decline in value.
In June 2022, Ethereum’s Ether token dropped to $891, meaning it’s also down more than 70 per cent from an all-time high in early November, when it was worth more than $4,800.
Why is crypto falling?
As stated earlier, the crypto crash has coincided with an equities slide, as US stocks suffer their biggest decline in two years. Global stocks have taken a downturn for several reasons, some of which include:
- Rising interest rates
- Fears about inflation
- The war in Ukraine
To help fight inflation, central banks have been raising interest rates, however, this can push down the prices of stocks and other investments, as investors feel compelled to sell off their riskier assets — such as crypto assets.
But China’s crackdown on cryptocurrency is playing a part in the current state of the crypto economy too, as is the speculation that Russia could also halt crypto operations.
Furthermore, the sudden sell-offs of major cryptocurrencies have triggered panic and additional sell-offs, knocking consumer confidence.
Why is cryptocurrency so volatile?
In contrast to traditional investments, most cryptocurrencies have no underlying assets. This means that rather than company shares, for example, which can fluctuate in price according to the performance of the business, they are based purely on investors’ speculation about whether they will rise or fall in the future. This means there can be violent price swings — even in extremely short time periods.
Since the cryptocurrency market is so new and unproven, it doesn’t take much to drive big swings. As well as inflation, rising interest rates, the war in Ukraine, sudden sell-offs and China and Russia’s reluctance about the crypto sector, factors like the lingering fight with COVID-19 and negative remarks from Elon Musk can also have a huge impact on the value of cryptocurrency tokens.
However, some experts have expressed surprise at how big the drops have been lately, as the crypto market was thought to be maturing, indicating less frequent and severe fluctuations.
What impact will the crypto market crash have on the wider economy?
While there are fears that the crypto crash could help trigger a broader recession, this seems unlikely as people don’t tend to use cryptocurrency as collateral for real-world debts.
With real-world assets, their value usually stays moderately stable for a significant period of time, which means they can be used as collateral to borrow money. But because of its extreme volatility, cryptocurrency can’t usually be used to buy more traditional financial assets and borrow off that basis. This means that crypto borrowing is normally contained in the crypto world (however, there are some exceptions to this, such as when software firm MicroStrategy took out a $205 million bitcoin-backed loan in March 2022).
It also seems unlikely that banks will offer cryptocurrency as an asset for their customers to invest in, as they have strict sets of regulations to adhere to, which means they have to be careful about which investments are appropriate.
Will cryptocurrency go up again?
As with traditional investing, prices constantly rise and fall, meaning cryptocurrency could climb just as quickly as it fell — especially given its volatile nature. However, again like traditional investing, there are no guarantees and it’s impossible to tell whether there will be a huge decline in its value again in the future.
Some experts are confident that the price of one Bitcoin could rise above $100,000 at some point, but while this is just speculation, one thing is for sure: The future of cryptocurrency is bound to be volatile.
Should I invest in cryptocurrency?
All investments come with some level of risk, however, investors in cryptocurrency can find it difficult to deal with the extreme volatility that this market suffers from. But if you’re comfortable with the huge price swings and you’re prepared to hold your nerve, crypto investments might be right for you.
If you are considering investing in cryptocurrency, you may find some of the following tips helpful:
- Only invest what you can afford to lose — This is true of all investments, but it’s especially true when it comes to crypto, as you stand to lose a lot more in a shorter time period.
- Diversify your portfolio — Keep your crypto investments to less than five per cent of your portfolio so you’re not as focussed on the drastic swings.
- Don’t become obsessed — It can be easy to become obsessed with checking how your cryptocurrency is performing, as it changes on a daily basis. Try to forget about it, so it doesn’t consume you.
- Don’t sell too fast — As mentioned throughout this article, crypto prices go up and down constantly, so holding out in the hope that they go up again could mean you end up reaping substantial rewards. If the crash is making you reconsider your crypto allocations, rather than acting rashly and making drastic changes to your strategy, it might be better to allocate less to cryptocurrency in the future or diversify through crypto funds.
If you’re thinking about investing now, while prices are relatively low, the last tip is perhaps the most important thing to bear in mind. While some predict that after a gigantic fall, the only way is up, you must be prepared for prices to fall even more. And that could happen now or some time in the future.
Summary
Like the stock market, the crypto market is currently experiencing a crash, with token prices plummeting, companies like CoinBase and BlockFi laying off employees and coins including TerraUSD imploding.
According to Coinmarketcap — a website which tracks crypto prices — the overall market value of cryptocurrency assets has fallen in recent months, from $3 trillion to less than $1 trillion.
In June 2022, cryptocurrency crashed even further, with the company’s data reporting crypto’s global market value as low as $840 billion.
In June 2022, two of the most popular cryptocurrencies fell to record lows:
- Bitcoin crash — When it fell to $18,000, Bitcoin lost more than 70 per cent of its value since reaching a peak of more than $68,000 at the end of 2021
- Ethereum crash — Ethereum’s Ether token dropped to $891, meaning it’s also down more than 70 per cent from an all-time high in early November, when it was worth more than $4,800
Global stocks have taken a downturn for several reasons, one of which includes rising interest rates. Rising interest rates can push down the prices of stocks and other investments, as investors feel compelled to sell off their riskier assets — such as crypto assets. China and Russia’s reluctance about the crypto market is also playing a part in the crypto crash, as are sudden sell-offs of major cryptocurrencies, the lingering fight with COVID-19 and negative remarks from Elon Musk.
Unlike traditional investments, most cryptocurrencies have no underlying assets and their value is instead based purely on speculation — which is what makes them so volatile.
While there are fears that the crypto crash could help trigger a broader recession, this seems unlikely as people don’t tend to use cryptocurrency as collateral for real-world debts. It also seems unlikely that banks will offer cryptocurrency as an asset for their customers to invest in, as they have strict sets of regulations to adhere to.
Cryptocurrency could climb just as quickly as it fell, however, like traditional investing, there are no guarantees.
If you’re considering investing in cryptocurrency, you should:
- Only invest what you can afford to lose
- Diversify your portfolio
- Try not to become obsessed
- Avoid selling too fast