What Caused the Cryptocurrency Collapse?

What Caused the Cryptocurrency Collapse

Since there have been several “boom and bust” cycles in the history of cryptocurrencies, many people have questioned whether it is safe to invest in them.

For the first time since November 2020, the value of Bitcoin, the most widely used cryptocurrency, fell below $18,000.

It is the most recent in a string of price drops that have hit the cryptocurrency industry; during the last seven months, the value of bitcoin alone has fallen by more than 60%.

What’s driving the digital currency, which seems to be on a declining trend? Below, we have a peek.

Why is the Price of Bitcoin Crashing?

A decline in global stocks has occurred as a consequence of:

  • The Ukraine conflict
  • Fears of inflation
  • Higher interest rates will make borrowing money for companies more costly.

This has spread to the market for cryptocurrencies.

Celsius Network, a significant US bitcoin loan organization, halted withdrawals and transfers in June 2022, claiming “extreme” circumstances as the cause of the decline.

As a result of the action, cryptocurrency prices fell below $1 trillion for the first time since January of last year.

Following the news, Bitcoin fell to $23,476. After bitcoin, ether is the second most popular token, and it fell as much as 16 percent to $1,177, its lowest level since January 2021.

Another factor is China’s ongoing crackdown on cryptocurrencies. Additionally, there have been rumors that crypto activities in Russia may cease.

Major cryptocurrencies have also seen abrupt and significant sell-offs. As a result of the resulting fear and additional sell-offs, consumer confidence has been damaged.

How Come Bitcoin is so Unstable?

Bitcoin has no underlying asset, as contrast to conventional investments like stock, whose price fluctuations may very well be impacted by the success of the firm.

This indicates that changes in its price are solely driven by investor conjecture about whether it will increase or decrease in value in the future.

As a consequence, the price of bitcoin might fluctuate drastically, even within a single day.

The price has changed as a result of many events, including:

Negative Examples

The price of bitcoin has fallen as a result of many unfavorable reports and threats of more regulation.

These consist of:

  • A significant US bitcoin lending firm, Celsius Network, halted withdrawals and transfers in June 2022, claiming “extreme” circumstances.
  • Also in June 2022, Binance, one of the biggest cryptocurrency exchanges in the world, halted bitcoin withdrawals, citing a “stuck transaction” as the reason for the backlog. Chief executive Changpeng Zhao.
  • It was suggested that Russia would prohibit cryptocurrency activities by the beginning of 2022. However, there were requests for cryptocurrency exchanges to prohibit Russian transactions following the invasion of Ukraine.
  • Elon Musk, the CEO of Tesla, said in May 2021 that the electric vehicle manufacturer will stop taking digital payments due to worries about the environmental effects of cryptocurrency “mining,” or the use of computational power to produce cryptocurrencies like bitcoin.
  • Banks and payment companies in China were instructed to cease allowing cryptocurrency transactions in June 2021, and the Chinese government outlawed cryptocurrency mining. Then, in September 2021, all cryptocurrency transactions were deemed unlawful, thus outlawing currencies like bitcoin.
  • Also in June 2021, Donald Trump, who was the US president at the time, called bitcoin a “scam” that was vying with the dollar to be “the money of the world.”
  • Over the years, FBI agents have taken bitcoin worth millions of dollars from criminals.
  • One of the biggest cryptocurrency exchanges, Binance, was effectively banned in August 2021 by UK regulator, the Financial Conduct Authority. The suspension of payments to Binance was imitated by large banks including HSBC and Santander.
  • The International Monetary Fund warned nations utilizing cryptocurrencies as legal cash in the same month, stating that such usage would jeopardize “macroeconomic stability” and jeopardize financial integrity.
  • Cryptocurrency heist: In a cyberattack last August that targeted the cryptocurrency platform Poly Network, a hacker stole $600 million. After returning more than half of it four days later, the hacker claimed that they had done it “for fun” and to “expose the vulnerability” in the system before others did.

Positive Examples

However, there have been more encouraging reports, and they have helped to preserve the price of bitcoin during the previous year:

  • The first major US bank to provide wealthy customers with access to bitcoin money was Morgan Stanley in March 2021; however, this service was limited to no more than 2.5 percent of a client’s entire net worth.
  • Elon Musk said Tesla will likely resume accepting bitcoin payments in June 2021 when more than 50% of its energy use came from renewable sources, a month after causing a crypto sell-off.
  • In July 2021, Amazon advertised a position for a “digital currency and blockchain product lead,” sparking rumors that it will soon start taking bitcoin as payment.
  • El Salvador legalized bitcoin as currency in September.

In terms of what they signify for cryptocurrencies, some tales have had a more ambiguous impact. The US Federal Reserve has been one of them, debating whether to introduce its own “central bank digital money” (CBDC).

President Joe Biden signed an executive order in March of this year to coordinate the US government’s efforts to regulate digital assets.

Although many supporters of cryptocurrencies believe that regulation is harmful, others believe that this new executive order might aid in the growth of digital assets like the CBDC and assist to guarantee that the proper consumer safeguards are in place.


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