Cryptocurrency is known for its wild price swings and wilder volatility, but there are other causes of crypto collapses as well. In this piece, we’ll look at some of the major factors that have contributed to crypto markets collapsing, including falling prices and investor panic.
Cryptocurrency Inflation: A Threat to the Economy
Cryptocurrencies were thought to be resistant to the effects of inflation, which was a selling point for many people. Many predicted that cryptocurrency values would be steady despite the dollar’s decline during times of economic expansion. Thus, cryptocurrency was understood to function similarly to traditional inflation stabilizers like gold. Due to rising inflation and fluctuating prices, popular cryptocurrencies like Bitcoin and Ethereum have failed in this role during the previous six months.
Volatility inside risk assets
Although cryptocurrency advocates have been shouting for years that Bitcoin and Ethereum are superior than the stock market, the truth is more complicated. The two types of investments have been more associated over the last few months, and dips in the stock market currently often anticipate decreases in the price of cryptocurrency, sometimes even greater drops in price. The perception of crypto-assets as high-risk, high-reward investments that might not be the greatest investments in periods of high volatility and turmoil is a contributing factor. The last obstacle is therefore reached.
The impact of the end of the pandemic era
It’s probable that March 2020 through the majority of 2021 will be recognized as the bleak apex of the epidemic. Unexpectedly, but ultimately characteristic of this time period was the impulse it gave individuals to save money they otherwise would have spent on vacations, restaurants, concerts, sports events, and many other activities that were postponed or cancelled for over a year. Many individuals with financial resources have chosen to invest their extra cash in the stock market and other new markets, such as digital currencies like bitcoin, rather than spend it on leisure activities. This nationwide and even worldwide pattern sparked a multi-month rally that sent cryptocurrency holders to record highs by the end of 2021.
An update on the conflict in Ukraine
Last but not least, it’s possible that the bitcoin market is experiencing a downturn because of the current situation in Ukraine. When investing during times of high geopolitical uncertainty, most individuals choose to put their money into the most tried-and-true, tried-and-safe options. Let it enough to state that despite their many benefits, cryptocurrencies are not a panacea. People will remain wary of hazardous investments that may have previously delivered fantastic profits until peace and security are regained in eastern Europe and on the global arena. Why? That’s because such high-risk investments would be the first to go if anything terrible happened and severely disrupted the global economy.
Centralization of global economy can be dangerous
The promise of cryptocurrency’s immunity from inflation was a big selling feature when it initially appeared. Although the dollar’s value fell during periods of economic boom, many analysts projected that the price of cryptocurrencies would remain stable. People used to think that cryptocurrencies like bitcoin and ether were the same as tried-and-true inflationary hedges like gold. Bitcoin and Ethereum, two of the most well-known cryptocurrencies, have failed to fill this function during the last six months due to growing inflation and unpredictable pricing.