“Fortune favors the brave,” said Matt Damon in an advertising video, released at the end of 2021, in which he invited people to invest in cryptocurrencies. Virtual currencies were booming and after years of skepticism they were finally beginning to gain credibility. Now its value is in free fall: in the last two years it went from being a millionaire market to sinking considerably.
Earlier this week bitcoin, the world’s most valuable cryptocurrency, has lost about 70% of its value since its all-time high in November 2021, when it traded around $69,000, according to data from Coinbase. But it was not the only one. Ethereum, the second most valuable virtual currency, has lost around 75% of its value. Cardano and Solana have also seen declines.
It is Wednesday and the world of cryptocurrencies continued to collapse, after the difficult start of the week that it experienced due to the blocking of withdrawals and transactions in Binance and Celsius, two of the most important cryptocurrency exchange platforms.
So while the world’s major central banks have raised interest rates to stem the spiraling inflation, many investors have decided to withdraw from risky assets.
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The winter is over and the sun is out
This is not the first time that the cryptocurrency market has suffered a precipitous decline. In December 2017, eight years after the alias Satoshi Nakamoto created Bitcoin, its price reached $17,000, an increase of 1,5000% from the previous year. But what happened next? It plummeted and in December 2018 it was trading below $3,400, a drop of 80%.
It was then that the “crypto winter” began to be talked about, as the specialized media outlet NextAdvisor points out, a concept that refers to the sustained drop in the price of cryptocurrencies, or in other words, “its price cools”.
The craze for bitcoin and other cryptocurrencies returned in mid-2019. The winter was over, the sun was out, and the cryptocurrency began to gain ground, albeit with ups and downs.
Meanwhile, governments and economists around the world were increasingly debating the regulation of virtual currencies in the face of their growing popularity.
The coronavirus pandemic
The price of cryptocurrencies is determined by the number of people interested in buying, so when no one is interested, the price drops.
But as more people want to buy, its price goes up. In 2020, during the most critical year of the coronavirus pandemic, the value of bitcoin soared 175% since the end of 2019, reaching $19,860.
The widespread adoption of cryptocurrencies grew and, in part, accelerated thanks to the covid-19 pandemic, as they were seen as an investment to hedge against inflation in times of economic uncertainty despite their volatile nature.
Financial institutions, Elon Musk and celebrities
By November 2021, bitcoin had already surpassed its all-time high and was trading around $69,000.
Earlier that year, Mastercard and Visa announced that they would allow their customers to pay with some cryptocurrencies in the near future. A few months later, Venmo – PayPal’s payment platform – also announced that its more than 70 million customers could buy cryptocurrencies such as bitcoin, ethereum, litecoin within its platform.
The billionaire and founder of Tesla Elon Musk has become the main promoter of cryptocurrencies but he is also the one who shakes his market the most.
In March 2021, he said his electric car company would accept bitcoin as payment, and its price rose nearly 3% to $56,242. However, two months later Musk backed down, saying that he would ultimately not accept cryptocurrency payment due to the enormous amount of energy needed to mine bitcoins and their prices plummeted 12%.
By June the billionaire launched bitcoin back on a new volatile ride when he tweeted that Tesla would start accepting the cryptocurrency again once at least half of it can be mined with clean energy. Then the price of the cryptocurrency rose to more than $39,400, roughly a 12.5% increase from the previous day, according to Coinbase. Ethereum was up over 7.7%, and Dogecoin was up roughly 5%.
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Musk has not been the only promoter of cryptocurrencies. A dozen well-known celebrities, including Matt Damon, Kim Kardashian, Tom Brady or Reese Witherspoon, publicized the controversial booming industry. They did it through their social networks or promotional videos where they encouraged their followers to invest. This earned them criticism because they did not talk about the risks involved in investing in a virtual currency that is not only volatile but also unregulated.
Things get cold again
Experts say that the climate of global uncertainty influences the massive drop in cryptocurrency prices. With interest rates rising, stocks plummeting and inflation skyrocketing, investors are turning their backs on these high-risk assets.
Bitcoin continues its slide and is trading just above $20,000 this Wednesday, June 15, as cryptocurrency selling shows little sign of slowing. Its massive fall has been described by the specialized blockchain data and intelligence provider Glassnoode as “the deepest and darkest moment”.
In addition, the turbulence has raised alarm bells among cryptocurrency investors not only because of its volatility, but also because of the structural problems that make it impossible for them to withdraw their money from exchange and transaction platforms.
Gates launches harsh criticism of cryptocurrencies and NFTsBinance, the world’s largest cryptocurrency exchange, halted withdrawals for a few hours on Monday, saying some transactions had “stuck”. Celsius Network, which has 1.7 million users, temporarily halted withdrawals due to “extreme market conditions.” They did not say when the exchanges would reopen, saying only that “it would take time.”
Coinbase, the largest cryptocurrency exchange in the United States by trading volume, announced Tuesday that it would lay off around 18% of its workforce, due to a recession that “could lead to another crypto winter and could last for an extended period of time.” “.
An increasing number of technology startups or startupslike Coinbase have made staff cuts to cope with a possible extensive downturn in the cryptocurrency market and the economy.
Companies have framed the cuts as necessary measures to deal with a change in economic conditions, amid concerns about rising interest rates and inflation. US stocks plunged into a bear market this week. The fear of recession is growing inside and outside the sector. And cryptocurrencies, once seen as a hedge against the stock market and inflation, have also plunged.