SOUTH SAN FRANCISCO, California Bitcoin’s price dropped to a level that hasn’t been seen since 2020. The value of the big bitcoin exchange Coinbase fell by a lot. One of the cryptocurrencies that was the most stable ever made has fallen apart. The value of cryptocurrencies has dropped by more than US$300 billion (S$419 billion) since Monday (May 9).
This week, the value of digital currencies crashed, showing how dangerous it can be to use untested and uncontrolled digital currencies. The quick drops of bitcoin and ether show that in some situations, you can lose two years’ worth of money in one day.
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During this time of fear, cryptocurrencies went through their worst reset since 2018, when bitcoin lost 80% of its value. But this time, because more people and institutions own the currencies, the value drop has a bigger effect. Critics said the crash was long overdue, and some traders compared the fear and anxiety to the start of the financial crisis in 2008.
Dan Dolev, An Analyst At The Mizuho Group Who Focuses On Crypto Businesses And Financial Technology, Said, “This Is Like The Perfect Storm.”
A Pew Research Center poll found that 16 percent of Americans now have virtual currency, which is up from just 1 percent in 2015. This is a huge jump from 2015, when it was only 1%. Northern Trust and Bank of America, as well as hedge funds, have also gotten in on the action by using loans to strengthen their investments in cryptocurrency.
If you started investing early on, you’re probably doing well now. But the sharp drops this week have been very painful for investors who bought cryptocurrencies when their prices went through the roof last year. Increasing interest rates, inflation, and economic instability caused by Russia’s invasion of Ukraine have caused cryptocurrencies to drop in value. These things have made a so-called “pandemic hangover” worse, which started when life in the US started to get back to normal. This has hurt the stock prices of companies like Zoom and Netflix that made money during lockdowns.
Still, The Drop In Crypto Has Been Worse Than The Overall Drop In The Stock Market.
Compared to the S&P 500, the price of bitcoin has dropped by 40% this year. Only in the last five days, the price of Bitcoin has dropped by 20%, while the S&P 500 has dropped by 5%. It’s hard to say how long the crypto market will be in shambles. Most of the time, the value of cryptocurrencies has gone up after big drops, but sometimes it has taken many years.
Charles Cascarilla, who helped start Paxos, said, “It’s hard to tell if this is Lehman Brothers or not.” Lehman Brothers went bankrupt at the start of the 2008 financial crisis. This will take a little longer than we thought it would. “At this rate, you won’t be able to answer.”
When Satoshi Nakamoto released bitcoin in 2008, you can find the start of cryptocurrencies. Virtual money was made as a decentralized alternative to the old system of money. Bitcoin supporters liked the idea of a shared ledger called a “blockchain” instead of relying on gatekeepers like banks to let business happen.
Musk, Jack Dorsey, and Marc Andreessen are just a few of the well-known tech executives who have embraced the technology as it has grown from a new curiosity to a religion-like movement. Digital currencies like bitcoin and ether are helping more and more people get rich. During the pandemic, when there was a lot of money in the banking system, people began day trading for fun. Other digital currencies, like ether and dogecoin, also became more popular.
The prices of cryptocurrencies reached their highest point at the end of last year. Since then, the prices have gone down because people are worried about the economy. But this week’s collapse of TerraUSD, a stablecoin, sped up the process. Stablecoins are often tied to a stable asset, like the US dollar, to make sure their value doesn’t change.
It Is Common For Traders To Use Them To Buy Other Cryptocurrencies.
Venture capital firms like Arrington Capital and Lightspeed Venture Partners gave money to cryptocurrency projects that were based on TerraUSD. Kathleen Breitman, the founder of the crypto platform Tezos, said that it gave people “a false sense of security” even though they may have known about the problems.
TerraUSD wasn’t backed by anything like bank deposits or government bonds. As an alternative, it said that its value was stable because a set of algorithms tied it to the value of a sister coin called luna. This week, almost all of the value of Luna was lost. It had a direct effect on TerraUSD, which fell to an all-time low of US$0.23 as a result. As investors worried, Tether, the most popular stable coin and a key part of the cryptocurrency market, also moved away from its US$1 peg.
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