Why does crypto crash? Should you hang on?

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In recent years, most people have undoubtedly heard of cryptocurrency even though they have not dipped their toes in the investment water. Now that the prices of Bitcoin, Ethereum and other cryptocurrencies are plummeting, is it time to invest? Will the crypto survive the crash and emerge stronger?

Why is cryptocurrency crashing?

Record high inflation, fears, rising interest rates and a loss of confidence in cryptocurrencies all contribute to cryptocurrency. Analysts say that most factors are “macro”, which means that they relate to the economy as a whole rather than any flaws in the crypto market.

“We have extreme fears in the markets right now. The market has priced in several rate hikes plus they have started pricing in a severe recession … we are in complete risk-off mode for all assets, just the way we were in risk-on-mode, “Bill Barhydt, chief executive of Abra’s crypto-financial services provider, told MarketWatch.com in a recent interview.

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However, some factors are exclusive to crypto investments, experts say. The crypto-lending platform Celsius Networks LLC recently stopped all withdrawals, exchanges and transfers between accounts “due to extreme market conditions.” This created more fear among investors who were specific to crypto.

The New York Times recently reported on 40-year-old investor Jacob Willette, a delivery driver who put all his savings in an account with Celsius. When the platform froze more than $ 8 billion in assets, according to the Times, Willette received no assurance that his money was safe.

Coinbase lost in the first quarter of 2022

The popular trading and tracking platform Coinbase lost $ 430 million in the first quarter of 2022 and the company’s shares fell 81%. The company announced plans to lay off a fifth of its employees, CBSNews.com reported. However, Coinbase has survived other cryptocurrencies, and many analysts are not worried about the future. “The winter must get worse for Coinbase to be in any real danger,” John Todaro, a crypto-active researcher for Needham & Co., told CBSNews.com.

Cryptocracy is not exclusive to crypto only. The Dow Jones Industrial Average, a key stock index, entered a bear market in mid-June 2022. The first week of July, the S&P 500 officially entered a bear market. Cryptocracy is felt throughout the industry, in addition to the losses investors experience.

Is the crypto market crashing?

Before you examine the future of crypto investing, here’s more about what caused the recent crash and exactly how bad it is.

At the beginning of July 2022, Bitcoin was 68.33% below the all-time high of $ 68,789.63, according to figures from Coinbase.com. A bear market refers to investments that reach 20% below the peak over a longer period. So Bitcoin is definitely in a bear market. Alt coins, including Ethereum and other cryptocurrencies, tend to follow Bitcoin’s path, so we can look at Bitcoin as an indicator of the overall market.

Bitcoin rose by more than 15% in the first week of July 2022, and cryptocurrencies are holding on. Experts believe prices could remain stable around the $ 20,000 mark for at least six months, according to CoinTelegraph.com.

Another bearish run, they say, could put Bitcoin between $ 14,000 and $ 16,000.

Ethereum similarly rose almost 5% between July 6 and July 7, but has not recovered from this year’s loss and is still well below the all-time high of $ 4,800 in late 2019.

Will crypto survive a crash?

While the stock market has a long history of ups and downs, with stock markets first starting up in the United States in the late 1790s, crypto, according to the Library of Congress, has no such past to draw from. Knowing that the stock market has experienced several bear and bull phases over the centuries gives investors security.

However, it is encouraging to know that cryptocurrency has survived several crashes in its short history. GOBankingRates.com documented at least seven significant Bitcoin crashes – and recoveries – dating back to 2011 when Bitcoin lost 99% of its value. The term “crypto winter” originated from these crashes.

As TheGuardian.com points out, “winter comes before spring”, and investors may just have to sit outside and “wait until the market thaws”, so to speak. However, this latest crash, combined with an impending recession, could make many investors hesitate to put their money in crypto.

Meanwhile, several Wall Street investors are shorting.

However, it may be worth hanging on. Beincrypto.com wrote: “In history, 100% of the people who have bought and waited for 4 years or more have seen their investment grow.”

Final Take

Crypto is still a very speculative investment. If you have a high risk tolerance, it may be worthwhile to diversify your portfolio with a percentage of crypto right now. But you should first look at your total budget, your savings reserves in case of emergency and any high interest debt you may have.

With rising interest rates and a recession, repaying debt and setting aside money for emergencies, which may include job losses, should be a priority.

If you feel safe and have extra money to invest, you can buy Bitcoin or your choice of all-currency on one of the best crypto exchanges, such as Coinbase, Kraken or Gemini.