Why is crypto crashing so hard?

However, cryptocurrencies have been particularly affected, as investors have been moving away from risky assets. And the fall in cryptocurrency prices is putting pressure on institutions and other major players in the field that made investments near the top of the market. Cryptocurrency investment has never been for the faint of heart. Experts say this is due to the broader global climate.

It's not just that in the cryptocurrency world things don't look good. Cryptocurrency markets are volatile, so buying cryptocurrency at any price, let alone a decline that could become a long-term trend, is risky. While prices could return to previous levels, they could also fall even further, leaving your investment underwater. In particular, stable coins are in the spotlight.

This type of cryptocurrency, as the name suggests, is supposed to have a stable value because the tokens are linked to the value of a currency such as the US. UU. The dollar or a commodity such as gold, which insulate relatively from extreme volatility. What is behind all this? What awaits the cryptocurrency market? We spoke to finance and investment experts to get an overview.

The result in the future was that inflation rose to the highest level in four decades. Abundant liquidity also drove up prices in most asset classes, including traditional stock markets and cryptocurrency markets, as traders invested their money anticipating higher returns. Rising prices mean economic problems for people, since our incomes do not increase, for the most part, at the same time as prices, and threaten economic growth in general. To control damages, earlier this month the Federal Reserve raised interest rates by half a percentage point, the biggest increase in about two decades.

The Federal Reserve is also reducing the money supply to further slow the rise in inflation and is expected to continue raising rates in the future. These are two cryptocurrencies created by the Terra network, a blockchain project developed in South Korea. Luna acts as collateral currency for UST. Stablecoins, including TerraUSD and Luna, were promoted as a class of crypto asset that, as the name suggests, offered more stability during market volatility.

Earlier this week, UST broke the parity against the dollar and, for the first time, the value of 1 UST fell to less than one dollar and fell to less than 30 cents. When the price of UST plummeted, the big Luna holders withdrew money, causing the supply of lunar tokens to increase and their price to plummet. Luna lost 99% of its value on Thursday. According to Bloomberg Intelligence, the sharp drop in the value of Luna seemed like the worst day ever seen for a financial product and prompted cryptocurrency exchanges to remove the currency from the list, halting their operation because there was no liquidity in the market.

One possible reason for the seriousness of this decline is the particular price structure of the UST token, said Edward Moya, senior market analyst at OANDA, a forex platform. UST works differently from other stable currencies, such as Tether, which are backed by a government-backed currency or commercial documents. It is a stable currency based on algorithms and uses a complicated method, with the help of Luna, to ensure that its value is maintained against the dollar. The Fed recently noted its concerns related to stable currencies in its biannual financial stability report, saying that the rapidly growing sector, which constitutes approximately 15% of the total market capitalization of cryptocurrencies, is vulnerable to runs and its risks could extend to markets traditional.

The cryptocurrency market, like the stock market, has been experiencing declines for months. It peaked in November and, with aggressive signs of liquidity tightening by the Fed, all asset markets have experienced a correction. Sylvia Jablonski, CEO and chief investment officer of Defiance ETF, said the correlation with Nasdaq is 0.82, above historical levels of less than 0.5 (on a scale of 0 to. In similar terms, both traditional and stock markets are moving in similar directions more than ever, so there is an indirect effect on investor confidence.

Experts are seeing a stronger correlation between cryptocurrency stocks and tech stocks, which were among the hardest hit stocks in the recent market crash. Some cryptocurrencies, in particular the market giant bitcoin, were promoted as assets whose value would remain in value over time, meaning they would be a good hedge against inflation. But as inflation skyrocketed, the price of bitcoin fell by more than half, making it less attractive to investors during periods of high prices. Moments: You may occasionally receive promotional content from the Los Angeles Times.

Somesh Jha, a financial journalist with nine years of experience reporting on the federal government of India from New Delhi, works with the Los Angeles Times business team as a journalist through the Alfred Friendly-Organized Crime and Corruption Reporting Project. He has reported on topics ranging from labor, public finance, banking and politics, and his research on “data politics” in India gained international recognition after revealing official survey reports, withheld by the government, showing record unemployment and a possible increase in levels of poverty. As the shares of technology companies plummeted, so did the value of Bitcoin. This news spread to other cryptocurrency markets, as merchants worried that selling would generate more sales.

Today, Bitcoin and other cryptocurrencies are plummeting, and companies like Coinbase, which manages the largest cryptocurrency exchange in the United States. Reconsider what you would be most comfortable with in the future, such as allocating less money to cryptocurrencies in the future or diversifying through cryptocurrency-related stocks and blockchain funds instead of buying cryptocurrency directly (although you should still expect volatility when the cryptocurrency markets) fluctuate). The co-founder of the automated cryptocurrency trading platform Coinrule, Oleg Giberstein, believes that cryptocurrencies are suffering the same tensions as other parts of the economy, leading to falling prices. .


Alexander Osario
Alexander Osario

Total twitter fanatic. Devoted tv trailblazer. Extreme pop culture ninja. Lifelong internet buff. Hardcore sushi expert. Hardcore music buff.

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