At the beginning of this month, the market value of digital assets for cryptocurrency fell below $1 trillion, signaling the current volatility of the industry.
According to statistics website CoinMarketCap, this is the first time since January 2021 that bitcoin has fallen as low as $926 billion.
The biggest cryptocurrency, Bitcoin, was severely impacted, dropping to an 18-month low of $23,750 (£19,475) — its value having dropped by over 50% this year.
What is causing the decline this year when the global cryptocurrency market peaked at $2.9 trillion in November 2021?
Why are cryptocurrencies falling?
Although there isn’t a clear cause for the cryptocurrency fall, experts have indicated that the larger global environment, rather than anything related to the currency itself, is to blame.
Along with the cost of living problem, inflation has been on the rise recently, reaching a 40-year high in the UK back in May. According to Marketwatch, inflation in the US has also risen to around 8.6 percent in recent months.
All of this indicates that large investors are taking less risks with their money.
Investors have abandoned riskier assets in only the last two months due to soaring inflation and concerns that central banks’ increases in interest rates would stifle economic development.
In the meanwhile, individuals with less money are far less inclined to invest, which will have an impact on the price of cryptocurrency.
It’s important to keep in mind that because cryptocurrencies are unregulated by any financial authority, whatever profits you’ve gained from them might be lost along with your life savings, assuming you used them to invest in the first place.
This occurred back in May when Ethereum, the second-largest digital currency in the world, fell by 20% in a single day.
That same day, the bitcoin market saw more than $200 billion go, alarming investors.
Two more currencies, Terra Luna and TerraUSD, also had price collapses last month. Terra Luna, which peaked in value at $118 in April, fell to $0.09, while TerraUSD fell to $0.4.
What should you invest in Bitcoin for?
This is dependent on a variety of variables, including your investment amount, time horizon, and level of risk tolerance.
Generally speaking, only risk capital, or money you can afford to lose, should ever be invested. It is advisable to keep your investment if you used that strategy with Bitcoin and its growth or fall won’t put you in a difficult financial situation.
According to Sam Volkering, a cryptocurrency specialist at Exponential Investor, “take a long perspective and attempt to disregard the short-term volatility.”
Although Bitcoin’s value is now down, there is no reason to believe that it won’t start to increase again in the future; as a result, your investment may once again turn out to be profitable.