2022 has been a roller coaster ride for cryptocurrency markets. The cryptocurrency market capitalization has fallen from a peak of $3 trillion to nearly $800 billion in just one year. Most of the top cryptocurrencies have turned red and are witnessing double digit losses. Crypto investors are on a big selling spree and are sitting on tight positions, which means a fall all around.
Bitcoin, the world’s largest currency, rose to an all-time high of $69,000 in November 2021, then hit $47,000 levels in January 2022, and is now trading below $18,000, following FTX falls. Similarly, Ethereum, which was at an all-time high of nearly $4,900 in November 2021, has now fallen below the $1,300 levels.
Why is the cryptocurrency market moving on a downward trajectory, what is driving it? Let’s dig deep through this reading.
The crypto market continues to plunge in 2023
The entire digital currency market has gone red and shows no signs of cooling down anytime soon. In fact, few digital coins and tokens have seen wobbles worse than others.
FTT, the original symbol of FTX was the backbone of the FTX exchange, has bottomed out amid the FTX scandal. FTT which was seen at $26 on September 1, 2022 is currently trading at lows around under $1. Other currencies such as Solana (SOL), which is referred to as the “Ethereum Killer”, have also had the worst fall. Solana traded at $37, the highest in the past three months on November 6, 2022, which has now touched the lowest at $12 levels.
Other altcoins such as Filecoin (FIL), Storj (STORJ), Decetraland (MANA), Apecoin (APE), Flow (FLOW), have fallen by an average of 20-40% since November 2022.
The two largest currencies by trading volume and market capitalization, Bitcoin (BTC) and Ethereum (ETH) have seen a massive drop from the massive FTX crash. Bitcoin is now trading almost at its lowest levels around $16,000 and similarly, ETH, which reached its yearly peak around $4,900 levels, is now trading at $1,200 levels as of December 20, 2022.
In contrast, Ripple (XRP) and Binance Coin (BNP) are not struggling as much, but are down almost 9% and 7% respectively. Tether (USDT), USD Coin (USDC), Dai (DAI) and TRON (TRX) are among the biggest winners on December 20, 2022.
Reasons behind crypto collapse in 2022
Known for its extreme volatility, cryptocurrency has witnessed a turbulent time in 2022. The main reason for the market decline is the downfall of one of the largest global cryptocurrency exchanges, FTX. FTX’s bankruptcy, and its with Binance, has not only triggered a major sell-off in the market, but has also reduced liquidity from the crypto market.
Binance, the world’s largest global cryptocurrency platform, was poised to buy rival FTX, but soon walked away from the buyout deal proposal, citing multiple issues with FTX’s finances and regulatory investigations. Binance’s decision stunned crypto investors and allowed Bitcoin to fall to its lowest level in two years, which reached $69,000 in November 2021.
These surprising events led to a turmoil-like situation in the crypto industry, resulting in a high level of distrust and skepticism among the investors of centralized crypto establishments and on the regulatory front.
The FTX contagion effect is quite evident, several questions have now been pointed out about the survival of other trading and lending firms such as Gemini, Coinbase. Experts believe that their survival is strictly dependent on their regulation, governance and management practices.
Apart from the sudden fallout of FTX and its contagion effect, rising interest rates and the recent hawkish tone of the US Federal Reserve’s tightening monetary policy have also added fuel to the fire.
Is it safe to invest in cryptocurrency right now?
This is not the first time Indian cryptocurrency investors have seen such extreme volatility. Be it Terra-Luna crash, Russia-Ukraine war, new crypto tax regime and now FTX collapse, investors are learning every day to deal with such situations and demand better rules for operational transparency, governance and regulations.
The series of unfortunate back-to-back incidents in the past year have severely impacted Indian investor sentiments negatively. Investors are playing more cautiously now, noting whether the digital assets they have invested in are transparent enough or whether they have been used as collateral.
In the wake of FTX, it is highly recommended to always invest in something you fully understand and which is regulated. Whether buying on dips, or waiting for the market to correct, crypto investors are wise to take the FTX situation as a wake-up call and only invest in the cryptocurrency market after thorough research. It is also recommended to invest only 5-10% of the portfolio in digital coins.
Step-by-step guide on how to invest in the Indian cryptocurrency market
Choose a cryptocurrency: Choose a cryptocurrency to invest in. Like any other asset class, each cryptocurrency has its own fundamental characteristics and is supported by different blockchain networks, mining techniques and intrinsic value. Since cryptocurrencies are extremely volatile, it is crucial to do your research well and then decide how much money to put into that specific cryptocurrency.
Choose a cryptocurrency exchange: In order to make a purchase of cryptocurrency, it is necessary for you to have a functional account in a cryptocurrency exchange. A cryptocurrency exchange is an online trading platform that helps you buy or sell cryptocurrencies To know about the best cryptocurrency exchanges in India, read our article “Compare Crypto Exchanges in India” for more information about exchanges.
Once you have selected a cryptocurrency exchange of your choice, you need to register yourself by providing personal information such as name, address and complete KYC formalities. You will then receive a deposit address from the platform. Once you get that, you’re ready to invest.
Choose your convenient payment method: Once you’ve chosen the cryptocurrency exchange of your choice, make sure you also choose the most viable online payment method, such as credit/debit cards or instant bank transfers, peer-to-peer (P2P) options, or even a crypto wallet . You need to add funds to your payment gateway to buy a crypto coin.
Buy cryptocurrency: After adding the funds, you can now easily buy your chosen cryptocurrency. After logging into the crypto platform along with added funds, you need to select your chosen crypto coin from the various currencies, which will be displayed against the current market price, total volume, ticker symbol and other relevant market information. You need to click on the “buy” tab which will help you to buy your chosen cryptocurrency.
Store crypto securely: When receiving the crypto coins in fiat currency exchange, remember to store your currencies in the safest way. Remember that cryptocurrencies are not backed by any regulated entity and therefore it is very important to secure them safely as they are always at risk of theft or hacking.
While almost all exchanges offer online wallet options, some investors also prefer cold storage, which allows you to store your coins offline. Cold wallets are not connected via the internet and are thus considered one of the safest options for holding cryptocurrencies.
“Sell” in time: This is a very crucial step, which ultimately helps you make money investing in any crypto coin. As you have placed an order to “buy” cryptocurrency, in the same way you can sell the cryptocurrency by clicking on the “sell” tab that will appear in your portfolio. The investor also has the option to sell his investment in whole or in part based on his own request. It is very important to order surplus in time.
The bottom line
Whether it is the downfall of such a huge global exchange, FTX, or fears of rising inflation and higher interest rates, it has all put a huge dent in investor confidence as they shy away from making new investments in the market.
With the uncertainty around and looming macroeconomic situations all over the world, it is better to observe the market movements with caution. Now is certainly a good time to carefully observe the finer points of the cryptocurrency market and not make any impulsive and reckless decisions.
And you never know, when this chaos clears up completely, the crypto investors might find their favorite digital assets at a much real value.
