The Cryptocurrency market is in a severe dilemma. The bear market has led many cryptocurrency investors to rethink their future cryptocurrency investments. How did cryptocurrency come to this stage? What else is waiting for us? In this article, we’re taking a closer look at the cryptocurrency market crash in 2022 and everything you should know about it.
Abstract
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- The crypto market recently hit the lowest market cap.
- Bitcoin is trading at its lowest level since December 2020
- Analysts say global inflation was the main reason for the crash
Present Situation
2021 is one of the best years for crypto investors. When Bitcoin hit an all-time high of $69,000 (Rs 54.5 lakh) in November 2021, Bitcoin’s overall market value reached nearly$3 trillion. Crypto analysts and evangelists predict that Bitcoin will cross the $100,000 mark before the end of the year. Little do they know the worst is yet to come.
In January 2022, the cryptocurrency market fell below the $2 trillion mark and then everything went down except for the slight recovery in April. At the time of writing, the largest cryptocurrency in the world, Bitcoin, is trading at $19,165 (about 15 lakhs) with a 7-day drop of 8.47%. This is close to a multi-year low.
Overall, its value has fallen about 70% from last year’s all-time high in November, while other tokens such as Dogecoin, Avalanche, and Solana, among others, have hit 90%. To date, the total crypto market capitalization is currently $860 billion.
How Did Cryptocurrency Market Crash Come About?
Many experts who have been commenting and writing on the crypto space for years consider global inflation as one of the main architects responsible for the dire state of cryptocurrencies.
The US Federal Reserve tried to combat the recession trap by raising interest rates, one of the steepest hikes in 28 years. While the cryptocurrency market was initially unperturbed by the 0.75% gain, many market analysts believe this led to a worsening inflation rate.
“Globally, inflation has forced central banks to reduce market liquidity by raising interest rates. This is the main reason leading to the collapse of the cryptocurrency market. However, while the top tokens only drive down the price and are likely to reappear once the crisis is over, the smaller tokens are unlikely to survive the crisis. “- Ajeet Khurana, Founder, Reflect
Even the stock market is in a bear zone, which is a 20% drop from its recent peak. While the S&P 500 is down more than 21%, the Nasdaq is down 33% in 2022. It is clear that inflation has played a role in the demise of cryptocurrencies and many are turning away from the idea of investing in such volatile assets. Sentiment towards cryptocurrencies as an investment has changed dramatically.
Rohas Nagpal, Lead Blockchain Architect of Hybrid Chain of Finance (HYFI), cited the following reasons for crypto crashes:
- Overvaluation for most money projects electronic.
- The gloom caused by the Russia-Ukraine conflict and COVID-related lockdowns.
- Governments are getting tougher on cryptocurrencies.
One of the reasons many governments are wary of cryptocurrencies is its decentralized nature and untraceable transaction history. Seeing the potential risks involved, the Indian government announced during its last budget session a flat tax of 30% on the transfer of digital assets, including
NFTs. The recent announcement of the Central Commission for Direct Taxes (CBDT) to levy a 1% withholding tax (TDS) on all cryptocurrency transactions has not gone well with the crypto community.
Worries About Regulation
Although many cryptocurrency investors believe that these regulations are an attempt to dissuade people from investing in cryptocurrency, others worry that a comprehensive ban may be implemented in the future, as in China or Egypt.
Many other countries have deployed strict regulations on cryptocurrency transfer due to their close relationship with dark networks and other malicious activities on the Internet. Just recently, the EU said it had reached new legislation that the transfer of cryptocurrency assets would be tracked and identified to prevent money laundering, terrorist financing and other crimes.
There are two reasons for this. On the one hand, through the supervision of cryptocurrency, investors can be protected from unprecedented losses caused by the collapse of cryptocurrency market, and bad actors can be tracked; On the other hand, cryptocurrency supervised by central institutions has lost its significance of existence, and people will not be keen to take cryptocurrency as a viable asset class.
In addition, the recent collapse of TerraUSD and
Luna tokens, one of the largest cryptocurrency projects, has also exacerbated the suffering of the cryptocurrency market.
The One Who is Submissive
Cryptocurrency collapse has its victims. The circuit breaker led to the liquidation of one of the largest cryptocurrency hedge funds, Three Arrows Capital (3AC) after failing to pay 15,250 Bitcoin and USDC worth $350 million. This $10billion cryptocurrency hedge fund is an investor in Terra and leveraged bets on many tokens that are currently struggling, including Bitcoin, Ether and Solana. Other large companies such as Voyager and BlockFi also filed for bankruptcy, but later reduced due to the funding of Sam Bankman-Fried, the billionaire boss of cryptocurrency.
Many large companies in the cryptocurrency exchange field have no choice but to lay off some employees. Crypto.com,one of the largest cryptocurrency exchanges, cut a total of 400 jobs on June 16, while Coinbase announced that it would cut 18% of its total employees; That is 1,100 employees.
According to a report by Coin Telegraph, the millionaire status of more than 80,000 bitcoin investors was cancelled, and only 26,284 addresses were reported to contain holdings worth more than $1million. This has fallen by 75% in the past nine months. In addition, the number of Bitcoin Whales fell sharply from 10587 addresses to only 4,342
How Should Investors Deal with this Problem?
Since many cryptocurrency investors now understand that making a big bet on cryptocurrency is not the wisest investment decision, they should always focus on investing the funds they can abandon. Investing your savings in cryptocurrency is by no means a wise decision.
