Last November, the world was riding an all-time crypto high — new coins showed substantial promise, millions of dollars for a JPEG of a monkey seemed slightly less ludicrous, many businesses started to accept tokens as a form of payment, and countries even accepted Bitcoin as legal tender. The promise was endless: from using NFTS as new ways to support the arts, picking coins that were seemingly “stable” (and therefore less volatile) by being pegged to the U.S. dollar, and even buying mortgage products via blockchain all seemed like worthy reasons for gaining a stake in crypto. It wasn’t just hearsay — Bitcoin ( (~BTCUSD) ) was named the highest-performing asset class of the decade by March 2021.
Besides, once top government officials, financial leaders, celebrities, and other high-profile figures flaunted their gains from investing in the cryptoverse, who wouldn’t be at least open to the idea of sharing a slice of the pie?
But since November, it’s been nothing but carnage: crypto has lost two-thirds of its value and in the process wiped out life savings, exchange platforms, and public faith in the system.
At the moment, there’s quite a bit of debate about the current state of affairs for crypto, with some saying the latest tulip-mania bubble has permanently popped and others saying it’s a healthy market downturn. So, what does all this mean for investors? Should those owning crypto hold or sell or buy even more? Should those sitting on the sidelines jump in?
First, let’s explain the crash of crypto, dubbed the “crypto winter” of the past few months. It seems that so many variables have contributed to the tanking of its value. On the macro scale, recession patterns as GDP fell for a second quarter in 2022 have made everyone a little more conservative when it comes to their investments. In peak pandemic times, and back when interest rates were low, investing in the cryptosphere didn’t seem like a bad idea. This was especially true for young investors, many of whom were collecting stimulus checks, and deciding to invest some of that cash made sense.
But as recession loomed and interest rates increased, prices sank. At its peak in November 2021, the price of one Bitcoin was over $65,000, compared to this summer, where it is currently at around $20,000.
Lastly, some industry-wide happenings have further shrunk the limited stability the cryptosphere has to offer.
The culprit — liquidity issues. Exacerbated by lenders and the falling price of coins, including that of stablecoin UST, have caused major exchanges to file for bankruptcy and halt transactions. In June, major crypto hedge fund Three Arrows Capital (3AC) defaulted on a loan to prominent brokerage firm Voyager Digital ( (VYGVF) – Get Voyager Digital Ltd Report) for more than $670 million. Voyager has since filed for Chapter 11 bankruptcy and has since stopped transactions. While the platform claims that USD deposits will be eventually returned to investors, full access to their crypto holdings isn’t guaranteed, resulting in millions lost to those who used the service.
Similar woes have impacted Celsius ( (CELH) – Get Celsius Holdings Inc. Report) one of the largest crypto lending platforms. Once with more than $25 billion in assets under management, it now has only $167 million in “cash on hand” and filed for Chapter 11 bankruptcy in mid-July. According to a CNBC report, it owes users more than $4.7 billion.
Hence these lending platforms, where users are promised …….
Source: https://www.thestreet.com/retirement-daily/your-money/cryptocurrency-crash-investors