According to a study from CoinMarketCap, in May 2022, the crypto market fell by more than $800 billion. The reputation of cryptocurrencies and their economies have been hit hard because of the fall of the most famous crypto in the world, Bitcoin. On May the 12th, BTC’s value fell to $26,600. In early August, its value dropped to $23,300. Simultaneously, Ethereum cryptocurrency, BTC’s main competitor, also lost almost 40% in value from April. So, what is going on in the cryptocurrency market, and why? Is it doomed to total collapse, and will it rise again from the ashes?
Why are cryptocurrencies falling in value?
Although the world talks about BTC and Ethereum, all cryptocurrencies are experiencing a crisis. It is because Bitcoin sets the trends in the crypto market and is considered the “gold standard” against other coins. Therefore, if bitcoin falls, other currencies fall too. Why is this the case?
Recently, bitcoin has become much “closer” to the US dollar and is affected by the Federal Reserve’s monetary policy. Due to coronavirus, when regulators were forced to relax conditions for creating and distributing cryptocurrencies, the crypto market became fertile ground to grow old and new projects. However, after the pandemic passed, the Fed tightened regulations once again. As a result, it is not surprising that the crypto market has been falling.
What do the experts say?
According to Alex Reinhardt, a crypto expert and founder of the PLC Ultima coin, cryptocurrencies have fallen due to rising interest rates, worldwide inflation, and the strengthening of the US dollar, which once again “suppressed” alternative currencies. The pessimistic forecasts experts started making about cryptocurrencies also undermined the community’s faith in them, which often drives the development of certain coins. It is why cryptocurrency differs from other assets such as bonds, stocks, real estate, etc., which are considered independent of external factors. However, as Alex Reinhardt points out when the world is going through an economic crisis, a social crisis begins, which unsurprisingly increases the existing risks of all current financial instruments.
Another reason is people’s irresponsible attitude towards participating in the crypto market. Many perceive coins as “luxury items” like artwork, gold, or jewelry, buying them for the long-term as a way to save money and protect it from inflation. However, cryptocurrency has no physical value, although it is a financial instrument. When you have not used your lawn mower for a long time, it starts to rust – the same happens with coins, which have no practical use in real life.
Approaching cryptocurrency as something of real value is ineffective. Users create the value of any cryptocurrency. They decide how to use it, whether to believe in it or promote it. Therefore, no community equals no coin. This begs the question:
Is there a chance of recovery in the crypto market?
Technically, there are no signs of this trend reversing currently. According to the CEO of Bitnalog, we cannot expect positive changes in the market until at least early autumn. BTC will rapidly rise again if the US Federal Reserve changes its policy on financial instruments (including the stock market) and returns to easing conditions. However, inflation must first be resolved for the world economy to stabilize. A lot also depends on geopolitics and the US elections in November.
Alex Reinhardt is more optimistic about cryptocurrencies. Only the small players are leaving the market, while big investors, who are used to playing the “long” game, remain. They will probably raise the market from its knees because experienced investors increase capital, including technical capital, during a recession. For example, mining equipment has also fallen in value because of the depreciation of bitcoin. So, this is not just about a “collapse” of the crypto market but a reset, when investors realize their responsibility for project development and then when relations with regulators, which are still controversial and problematic, finally stabilize.
Also, remember there are still exclusionary coins, which successfully stay afloat even in a crisis. For example, PLC Ultima, thanks to its developed ecosystem, provides its users countless opportunities to use PLCU in real life. For example, investing in projects on a crowdfunding blockchain platform, earning passive income, or purchasing goods with PLCU and other cryptocurrencies across Europe using the marketplace. Furthermore, as mentioned above, the community shapes the value of cryptocurrencies, so those coins used daily in different countries worldwide are guaranteed to survive and rise over time.