Bitcoin and cryptocurrency prices, including major coins ethereum, Binance’s BNB, solana, cardano and XRP, have dropped sharply, wiping almost $1 trillion dollars from the combined crypto market in less than a week.
Bitcoin has stopped crashing quite so dramatically – but is still continuing to fall.
In recent days, the cryptocurrency has been hit by a run of major plunges that have left it down almost 30 per cent over the last week.
For Bitcoin, there’s only been one constant recently: decline after decline after decline. And the superlatives have piled up really quickly.
With the US Federal Reserve intending to withdraw stimulus from the market, riskier assets the world over have suffered. Bitcoin, the largest digital asset, lost more than 12% Friday and dropped below $36,000 to its lowest level since July. Since its peak in November, it has lost over 45% of its value. Other digital currencies have suffered just as much, if not more, with Ether and meme coins mired in similar drawdowns.
Bitcoin’s decline since that November high has wiped out more than $600 billion in market value, and over $1 trillion has been lost from the aggregate crypto market. While there have been much larger percentage drawdowns for both Bitcoin and the aggregate market, this marks the second-largest ever decline in dollar terms for both, according to Bespoke Investment Group.
“It gives an idea of the scale of value destruction that percentage declines can mask,” wrote Bespoke analysts in a note. “Crypto is, of course, vulnerable to these sorts of selloffs given its naturally higher volatility historically, but given how large market caps have gotten, the volatility is worth thinking about both in raw dollar terms as well as in percentage terms.”
In a recent interview with Emily Chang, the host of Bloomberg Studio, Michael J Saylor, Co-Founder and CEO of Nasdaq-listed business intelligence company MicroStrategy Inc, gave two reasons for the current crypto crash. Saylor’s latest comments about crypto were made during an interview on Thursday, January 20.
Saylor gave two reasons for the current crypto market crash: “I think that there’s a lot of dynamics here. If you look at the entire crypto ecosystem, you have a set of regulatory uncertainty, especially regulatory uncertainty around stablecoins and crypto tokens and whether or not they’re securities. And that creates a little bit of anxiety.”
He also spoke about how the emergence of Decentralised Finance (DeFi) exchanges made cryptocurrency more volatile. For the uninitiated, DeFi is an alternative finance ecosystem where consumers transfer, trade, borrow and lend cryptocurrency, independently of traditional financial institutions and the regulatory structures that have been built around banking. The DeFi movement aims to “disintermediate” finance, using computer code to eliminate the need for trust and middlemen from transactions.
“You have a lot of leverage offshore. You have a lot of crypto exchanges that can trade with up to 20x leverage. And those crypto exchanges have many, many tokens that are cross-collateralized. Between them and the decentralized finance [DeFi] exchanges, you can get much higher than 20x leverage. So that’s the second source of volatility.“
Light at the end of the tunnel?
BuyUcoin CEO Shivam Thakral said investors should look at the dip as an opportunity to buy more assets. “It was January 15, 2021, when Bitcoin was hovering around $36,000, so its current dip in price seems more of an opportunity rather than a crisis,” he said.
A combination of factors is weighing down the crypto market–tightening of monetary policies by central banks, regulatory confusion, a prevailing broader sell-off across assets like equities, inflation worries and Omicron-related.
The final question is where does bitcoin and cryptocurrency go from here?