The price of bitcoin fell almost 75% from its peak in late 2021
The fall of cryptocurrencies does not stop. This morning bitcoin, by far the most popular and with the largest market capitalization, fell below USD 20,000, a milestone that could trigger a new wave of sales and deepen the crypto-crisis. At the end of 2021, the capitalization of the more than 10,000 existing cryptocurrencies had exceeded 3.2 trillion (millions of millions) of dollars. This morning, the total value fell below USD 850,000 million, having lost more than five times the annual GDP of Argentina.
Early on Saturday morning the bitcoin fell below the < USD 19,000, a loss of 9%, which it cut in the following hours. At 8 in the morning in Argentina, the value of the most famous cryptocurrency was USD 19,380according to the Coinmarketcap portal.
While, Ethereum, the second cryptocurrency by capitalization, created by the Russian-Canadian Vitalik Buterin, was trading at USD 1,006, about to fall for the first time in a long time below one thousand dollarsanother milestone that could deepen the pessimism of those who still cling to the holding of cryptocurrencies.
Dropping below $20,000, bitcoin fell back to levels below the peak it had reached in 2017. In the last 24 hours, both bitcoin and ethereum lost more than 8% of their value, and in the last 7 days more than 33 and more than 36% of their value, respectively.
The cryptocurrency crisis, which some have called “crypto-winter”, was triggered by several events, but mainly by the increase in international interest rates to combat inflation. By withdrawing from the market a large part of the credit and easy money with which between 2020 and 2021 the central banks and treasuries of the world’s main economies combated the depressive effects of the coronavirus pandemic on economic activity, they left without financial fuel the bets on sectors such as “technological” companies, investment vehicles such as Spac (for the acquisition and creation of companies) and cryptocurrencies.
The most powerful action of this type was the recent decision of the US Federal Reserve (Central Bank) to increase in a single session the reference interest rate by 75 basis points (0.75%), something that did not happen 28 years ago. years.
This measure, furthermore, was triggered by the spread of the highest inflation rate in the US in the last 41 years, which signaled to the markets that there will be new rises (to achieve a reduction in inflation), which will probably cause a recession in the US, a phenomenon that, when added to the marked economic slowdown in China, would plunge the global economy into a more or less prolonged period of stagflation.
In the case of the crypto market, in addition, the recent decision of Celsius and Babel Financial, two crypto market lenders, to limit the withdrawal of funds, and the refusal of Three Arrows to provide coverage for some cryptocurrency bets, also had an influence..
The previous internal blow had been the collapse of Terra and Luna, two related algorithmic cryptocurrencies that in 48 hours lost almost 100% of their value (about USD 40,000 million) and caused a cascade of losses of USD 300,000 million. Since then, 40 days ago, the crypto universe has dragged along painfully, with brief recovery impulses running out to restart the cycle of decline. Since its peak last November, bitcoin has lost more than 70% of its value.
Crypto mining in crisis
Another closely related phenomenon is loss of profitability of bitcoin miners, squeezed by a kind of scissors effect. On the one hand, the increase in energy costs, which they use intensely to solve the complicated algorithms required to “mint” new crypto units, and on the other, the loss of their value, which is their reward.
The profitability of crypto mining collapsed: on the one hand, the prices of energy, which consumes a large amount, increased sharply; on the other, the reward fell, both due to the reduction in the number of “prize” units and the very strong drop in price
In the case of bitcoin, the halving, the process by which every 300,000 “blocks”, roughly every four years, the bitcoin mining reward is halved. Currently that reward is 6.25 new bitcoins per resolved operation, while two years ago it was 12.5 bitcoins.
Between the rising cost of energy, which they consume intensely, and the drop in rewards, both in units and in the value of each, the profitability of bitcoin mining plummeted. The phenomenon was soon reflected in the hashratea measure of energy consumption in the minting of new units, which in the last week fell by 4 percent. And the value of the shares of large crypto mining companies, such as Marathon Digital and Hut 8, fell 40% in the last month.
According to the British magazine The Economist, “the crypto infrastructure is broken.” As the icing on the cake, there are more and more calls and initiatives to regulate and control the crypto world, particularly because of its relationship with money flight and other illicit activities.
Samuel Edwards is the name you must have heard many times while reading reports related to Finance, that’s what he is good at. From Major Investments to Stock Market Updates, he got ’em all. Be ready to blow your mind by the mind-blowing reports of Finance World from Samuel Edwards.