Crypto winter has hit investors. The worldwide cryptocurrency market valuation has dropped by roughly $1 trillion in 2022, and almost all leading coins are now worth half or less than their all-time highs.
Two days after plunging below $25,000, Bitcoin is down to around $20,000 levels. The price of Bitcoin plunged to $20,810.18, down 9 per cent, and Ethereum fell 11.52 per cent at $1,097.99 at 1.28 pm on Wednesday. The price of Bitcoin (BTC) plunged below $25,000 on Monday from $64,000 in the year 2021. Ethereum (ETH), the second-largest cryptocurrency in the world, fell more than 8 per cent to $1,311 from $4735 in the year 2021 september, its lowest level since March 2021.
The key question here is whether the market will go into a further freefall or things will look up going forward. We spoke to experts to give you some answers.
According to experts Outlook Money spoke to, equity and crypto markets have been in a tailspin on the fears of lingering inflation. Recent numbers from the US Bureau of Labor and Statistics peg inflation at a four-decade high of 8.6 per cent. More interest rate hikes would be needed to tame inflation, bringing more fragility and uncertainty in the markets.
“This has fuelled pessimism in the markets, and investors are staying away from risky assets such as crypto. Altcoins have been facing the wrath of the overall bearish sentiment,” says Sharat Chandra, vice-president of research and analytics at EarthID, a blockchain company.
Some crypto proponents that this is not something that has never happened before and patience is the key. “Cryptophiles argue that this boom-and-bust cycle is a positive since it has happened before and because all crashes have occurred at a higher level than the past one,” says Utkarsh Sinha, managing director, Bexley advisors, a boutique investment bank firm. He adds, however, that cryptos have still failed to establish a use case that is critical. “It remains a solution in need of a problem that doesn't yet exist,” he says.
Another factor is the contagion throughout the crypto/DeFi market that is occurring. “Stable coins, bitcoin, Ethereum and a number of DeFi platforms are closely intertwined and cross-linked, and once a downward trend starts, it ends to cause a self-fulfilling domino effect (much like on the upside). Just today, Celsius, a DeFi major had to freeze withdrawals; we can expect more erosion of the crypto sphere over the rest of the year,” says Sinha.
Oriol Caudevilla, Board Director at the Global Impact FinTech Forum (GIFT), and a fintech advisor, says the industry is, to some extent, in its infancy, which means that it is evolving constantly and quickly, much faster than most other industries. "This brings a certain level of volatility which implies that BTC´s (or other cryptos) highs can be followed by big drops, without these drops involving the end of the industry or anything tragic like that. Even though it is difficult to make any predictions, we will see in the coming months an increase in the institutional adoption of crypto and an increase in its regulation," says Caudevilla.
The crypto space remains volatile and uncertain. As of now, with lack of regulation, investors need to enter at their own risk.
