The cryptocurrency market’s multi-day tumble continued on Monday, with Bitcoin falling more than $10,000 across the weekend, dipping to a seven-month low before rising slightly to hit a current price of $33,550.
Ethereum, another popular cryptocurrency, also fell 30% this week, reaching $2,270. Even Dogecoin managed to fall 27% despite not having nearly as far to fall in the first place. All told, the entire cryptocurrency industry has lost $1.4 trillion in the last two months since an all-time high in November.
What’s behind the sudden crash for one of the tech industry’s buzziest new projects, and is it a sign that cryptocurrency is headed the way of the Crypt Keeper? The short answer is that cryptocurrencies are the canary in the stock market coal mine. For the long answer, keep reading.
Crypto’s Shaky 2022
We’re not even a month into the new year, and the crypto market has already taken an impressive amount of knocks. We wouldn’t want to be the mayor of New York City right now, given he’s accepting his first three pay checks in bitcoin as a stunt:
Marked here is the date when Eric Adams received his first mayoral paycheck completely in Bitcoin lmao pic.twitter.com/cRRk9ZmVsN
— eli yudin (@eliyudin) January 24, 2022
Here’s a quick summary of the worst news items from the past several weeks. First, hackers stole almost $34 million from the popular cryptocurrency exchange app Crypto.com, which responded by temporarily freezing all deposits and transactions in a move that affected 10 million US account holders.
The app’s insurance policy will likely prove useful, but the event is a big blow against taking the trustworthiness of the organizations in control of digital currencies — as well as a mark in favor of taking all the precautions you can to keep your online accounts safe.
Russia’s Potential Ban
Worse yet was the news that broke last Thursday: The central bank of Russia is calling for a ban on the use and mining of cryptocurrencies within the nation. Russia is currently the third largest crypto mining nation on the globe, so this would have a major impact.
“Potential financial stability risks associated with cryptocurrencies are much higher for emerging markets, including in Russia,” the central bank said in its report. “This is due to the traditionally higher propensity for saving in foreign currency and an insufficient level of financial literacy.”
The bank also called out one of cryptocurrency’s biggest problems — the large amounts of electricity required to mine it — arguing that it would deplete the nation’s energy.
But there’s a more likely reason why crypto is deflating so rapidly right now: The stock market overall is on the decline, too.
The Stock Market Slump
The same week that cryptocurrencies saw their big downturn, the Nasdaq index saw the same, dropping nearly 5% by the end of last Friday. Why? Mostly because of a growing understanding among investors that many major central banks around the world will be raising interest rates quicker and to a greater extent than previous forecasts had anticipated.
As a result, investors have incentive to sell their risk assets — and the volatility of the cryptocurrency market makes it one of the risker assets out there. The potential ban in Russia, along with hints that the US may tighten regulations soon, are adding more fuel to the fire.
The Future of Crypto
What’s next? Depends on who you ask. Some experts are saying that Bitcoin will recover and eventually pass a $100,000 valuation — if that proves true, now’s the time to buy.
Other experts, however, are pointing out that these cryptocurrencies can potentially fall a lot farther in the near future, and call recovery a “longshot.” As it stands, many crypto investors will likely hold on to their stake, but we’ll have to wait a while longer before it’s clear whether or not that’s a great idea.
