The week has been bad for crypto markets. Nevertheless, long-term investors are ignoring the sharp reductions in the value of digital currencies as well as the collapse of the exchanges that provide them to buyers.
The most valued cryptocurrency in the world, Bitcoin, fell to little under $21,000 on Wednesday. Since Friday, it has dropped a quarter of its value and is now trading for around to 70% less than its November peak of $68,000 per coin. The value of Ether, the second-most valued cryptocurrency, has decreased by almost a third since Friday and is now 75 percent below its highs.
More worrisome are the structural issues that make it difficult for investors to withdraw funds from cryptocurrency exchanges. The largest cryptocurrency exchange in the world, Binance, halted withdrawals for a few hours on Monday because certain transactions had “become stuck.” Due to “extreme market circumstances,” The Celsius Network, which has 1.7 million customers, momentarily stopped withdrawals. They just said that it would “take time” and did not specify when they would reopen the exchanges.
A recession that “may lead to another crypto winter, and might endure for a long time,” according to Coinbase, the biggest cryptocurrency exchange by trading volume in the United States, prompted the company to announce on Tuesday that it will lay off nearly 18 percent of its workers.
Leaders in the cryptosphere aren’t very concerned right now, at least. They claim that this is expected and that a bear market in cryptocurrencies is different from a bear market in equities because the lows are more dramatic but the highs are also.
According to Jason Yanowitz, co-founder of Blockworks, a research platform for crypto investors, executives, and builders, “Crypto bear markets often pull down between 85% and 90%.” Bitcoin lost more than 80% of its value during two protracted crypto downturns in the previous decade, but the currency recovered — and then some.
In the crypto bear market from 2017 to 2018, bitcoin fell 83 percent, from $19,423 to $3,217. Nevertheless, the coin’s value increased to $68,000 by November 2021.
Etherium saw a 95 percent decline during this time, going from $1,448 to $85. The coin was valued at $4,850 in November 2021. Bitcoin likewise saw a decline of around 82 percent during the bear market between 2013 and 2015, from $1,127 to $200.
“If you purchased [bitcoin] around the 2017 bull run’s apex (about $20,000), you saw an 80 percent fall during the following year. However, if you held on, you would now be up about 60%, even after the cryptocurrency market’s most recent collapse from all-time highs last N “CEO of Xchange Monster Felix Honigwachs remarked, “November.”
Yanowitz said that crypto is inherently more volatile due to its youth (it just began in 2009). He cites Amazon (AMZN), whose stock price peaked in the late 1990s internet boom at $113 per share before falling by 95% to $5.51. Prior to its 20-1 stock split taking effect on June 6, when it closed on Tuesday at $102.31, it was trading far over $2,000 per share.
Yanowitz said, “I completely disagree with the people who claim there is no possibility to recover from something like this. “People probably see cryptocurrency as strange or unreal when they look at it. You probably think cryptocurrency is overpriced if you don’t believe it to be genuine.” However, he said, this loss isn’t nearly as catastrophic as the last crypto bear market.
Not only cryptocurrencies, he said, but also other tech equities are now down drastically. Shares of Lyft (LYFT) are down 67 percent, Netflix (NFLX) are down almost 72 percent, and Uber (UBER) are down more than 50 percent year to date.
However, there are significant worries over digital money. During the last slump, fewer investors were exposed to cryptocurrency’s severe declines, so more investors this time around stand to lose money. John Browning, co-founder and managing director of BAND Financial, said in a note on Tuesday that although some fresh cryptocurrency-related businesses would struggle during the dip in this competitive crypto market, coin prices will probably rise once again in the long run.
As Warren Buffett famously said, “It’s only when the tide goes out that you learn who’s been swimming naked.”