Cryptocurrency crisis with all the details in 8 questions

Cryptocurrency crisis with all the details in 8 questions 

Cryptocurrency markets, which have been in a bear market for a long time, witnessed extraordinary decreases last week. In the news of Fortune, there are those who are curious about the sharp movements in the crypto markets.

Cryptocurrency crisis with all the details in 8 questions

Cryptocurrency markets are in turmoil. Cryptocurrencies, which reached all-time highs in November, faced shock price movements throughout the week. 

Many questions have arisen in the minds of cryptocurrency investors, when will cryptocurrencies be stable, and whether cryptocurrencies are expected to stabilize in the coming winter.

In Fortune news, the crypto crisis, which has been on the agenda for a while, is explained in 8 questions:

How low have the crypto markets fallen

The total value of crypto markets globally has dropped by 59% since hitting an all-time high in November 2021. However, the past week has been particularly brutal.

Crypto markets lost around $ 1.18 trillion to $ 1.2 trillion on Thursday, according to data from CoinMarketCap. That's a 33% drop in a single week.

The effects of the damage from the sale were also widely felt. Bitcoin fell by a third from May 4 to May 16.

According to the information compiled by WebMD Daily Lifestyle, on May 12, at 07:00 US time, Bitcoin dropped to $ 26,284.90. Bitcoin, which recovered after sharp declines, is valued at around $ 30,470 on Friday at noon.

Ether, the second-largest cryptocurrency in the world, lost 35% in the period from May 4 to May 16. Ether is trading at around $ 2,000.

In altcoin markets, Cardano, Solana, and Polkadot dropped by over 45% on May 12 bottoms. 

The speculative cryptocurrency DogeCoin, on the other hand, bottomed out with a drop of more than 40%, falling to $ 0.072. DogeCoin is trading at around $ 0.087 on Mon.

How dangerous is currency devaluation

Assessing the gains and losses of investing in the cryptocurrency markets depends on where the analysts look.

From afar enough, the total value of the global cryptocurrency markets can still be seen to have increased by 789% since March 2020, when the cryptocurrency last started to rise. In contrast, in the winter of 2018, the global value of the cryptocurrency markets fell by nearly 70%.

What caused the Bitcoin crash

There is no single reason behind Bitcoin, the world's largest cryptocurrency, hitting its lowest level since December 2020.

Just like other risky investment assets such as tech stocks, special purpose buyout companies (SPAC), and new publicly traded stocks, Bitcoin is battling rising inflation in the US. 

The declines in question were triggered by the US Federal Reserve's (FED) starting to raise interest rates, abandoning the idea that inflation was 'temporary'.

Although Bitcoin has been described as an investment vehicle that offers inflation protection by its proponents, it has been a far cry from protection investments.

After the Federal Reserve announced on May 4 that it would raise interest rates by half a point, sharp drops began to be observed in Bitcoin.

’’This week, the markets took a surprising turn after the Fed meeting. The volatility of stock indices and cryptocurrencies coincided once again,”

Lucas Otomoro, head of research at cryptocurrency research firm IntoTheBlock, said last week.

What is UST crypto

It is the first of its kind, known as the UST stablecoin, produced by Terraform Labs under the leadership of South Korean cryptocurrency entrepreneur Do Kwon.

The idea, as the word stablecoin suggests, stabilizes its value at $ 1 and provides investors with a safe haven during wild volatility swings in cryptocurrencies. 

Most stablecoins, such as Tether and USDC, the two largest stablecoins, claim to be backed by an equal amount of cash, bonds, and other assets to achieve this goal.

UST is a crypto asset known as an algorithmic stablecoin. This means that there are no real assets supporting the UST.

According to Marco Quiroz-Gutierrez of Fortune, in order for UST to keep its price around $ 1, it has an algorithm that only acts on trades made in UST or its sister cryptocurrency Luna, or on tokens produced.

What happened to UST

On Saturday, UST broke the $1 level for the first time. The not-so-stable stablecoin's decline is believed to have started with the fall of Anchor, a Terra-based decentralized finance protocol that has long been a concern to UST skeptics in UST deposits, Fortune reports.

After the divergence in prices, UST could not recover. UST fell to 70 cents on Monday, to 60 cents on Tuesday, and 30 cents on Wednesday. According to data from CoinMarketCap, the UST has valued at around 10 cents on May 16, US time at 12 p.m.

So what happened to Luna

The declines in Luna, UST's sister currency, are quite remarkable. A week ago, the cryptocurrency Luna was trading at around $ 87. However, Luna has lost 99.93% in the last seven days.

Luna fell 97% in 24 hours on Thursday, when Terra, the crypto network that houses both Luna and UST, was shut down for about two hours. The cryptocurrency is trading at $0.0001527 on May 16, US time at 12 p.m.

Why are Coinbase shares crashing

Shares of the largest US crypto exchange have been falling for months, and this decline is closely related to the cryptocurrency markets.

Just like Bitcoin and Ether, Coinbase shares hit an all-time high in November. Since then, the company's shares have plummeted.

Investors have diverted their money from growth-focused companies like Coinbase to more stable money-making stocks.

However, the wave of sales in Coinbase shares has accelerated since Tuesday, when the company announced its first-quarter balance sheets.

Because the balance sheets did not meet the expectations of the investors. The company, which shared a net profit of 771 million dollars in the first quarter of last year, lost a net loss of 430.7 million dollars in the first quarter of this year.

The number of users making monthly transactions decreased on a quarterly basis. The company's trading volumes also fell. All these declines may not be recovered anytime soon.

“We believe Coinbase stocks will struggle to outperform in the near term as the market is focused on profitability, recession risk, and the waning pandemic-induced enthusiasm in retail trading,” Goldman Sachs analyst Will Nance said in a May 11 research report.

Should crypto assets sell or will prices rise again

The most common question asked by investors is how to manage crypto assets. Should you sell cryptocurrencies and close crypto accounts, or Margin buying.

There is no clear answer to these questions. However, the decisions to be taken are entirely related to the position of the investor and how much risk they can take.

Because, an investor who will invest in crypto needs to evaluate how much savings he has, how many years until retirement, whether he has paid a mortgage, or how much he is considering investing in crypto.

Crypto experts and analysts like Sam Bankman-Fried, CEO of FTX, have been optimistic about the recent declines.

In a statement to Fortune, Bankman-Fried said that with the recovery of stocks, crypto will also recover. “Crypto markets have largely stabilized, FTX CEO explained.

On the other hand, the famous stock market expert Mark Cuban warns, “Do not go overboard in investing in crypto”.

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