Bitcoin and other cryptocurrencies have fallen to their lowest price since 2020 and there is reason to believe that they may fall further.
Every morning seems to cause a new pain for crypto holders as they wake up to open Binance, Coinbase and other trading apps to be greeted with a sea of red.
On Thursday morning, the price of several major cryptocurrencies reached their lowest levels since late 2020, including bitcoin, which fell to $4,0602.04.
Bitcoin was worth over $63,000 as recently as March 29 and nearly $90,000 in November of last year.
The second most popular coin, Ethereum was no better off, dropping to $2,909.78 overnight – miles away from its all-time high above $6,300 during the same November peak in 2021.
“Encryption is dead”
The recession in the cryptocurrency market saw huge losses in the wallets of its owners – But there are predictions that could get worse.
There have been four previous major Bitcoin crashes since 2014 and each time the price reached the 200-week moving average.
This time around $29,000, which indicates that the price could drop another 25-30 percent before the bleeding stops.
Ross Clark of The Spectator went so far as to declare that “crypto is dead”.
Clark wrote: “The warning sign of cryptocurrencies does not mean that they have crashed… but that they are getting boring.”
“Bitcoin has had many crashes before, yet lower feeders quickly rushed into the market and sent the price into a recovery. This time around, there is little sign of any enthusiastic speculation.”
“Many believe that Bitcoin and other cryptocurrencies can turn into an inflation hedge. Those hopes have been dashed. While most currencies have been depreciating against real world assets, the value of cryptocurrencies is declining faster.”
So, what should you do?
While countless owners have dumped their cryptocurrency in recent days in an effort to limit the damage, others are still pulling the trigger.
Financial advisors say it’s not a time to panic but a time to rebalance your portfolio and consider selling any currencies that may not have long-term value.
“Bear markets are usually a great time to accumulate coins that you have a long-standing belief in,” Gritt Trakulhoon, lead crypto analyst at investment app Titan, told Bloomberg. “It’s a tough market for sure, but the time is right to strategize.”
Trakulhood predicts that 90 percent of coins will “not recover” from the current crash.
“At this point, it’s better to focus a little bit more on currencies that you have a strong conviction in than to diversify into altcoins that you don’t really understand,” he said.
“They will simply die – but those who survive will thrive.”
As for those considering buying a dip, tread carefully.
Oleg Geberstein, co-founder of cryptocurrency automated trading platform Coinrule, told Forbes that the market could remain challenging for up to two years and get worse during that time.
“Many novice investors have been burned trying to catch falling knives,” he said.
Even stablecoins are not stable
One of the major shocks this week came from the increased volatility of the so-called stablecoins.
Terra UST, a cryptocurrency that is supposed to be pegged to the dollar, has lost half its value this week, sparking panic in the already overheated world of crypto assets.
Terra UST is supposed to track roughly $1 per coin but at one point it traded at 30 cents on Wednesday before recovering to around 75 cents.
So-called stablecoins like terra are supposed to be less volatile than cryptocurrencies like bitcoin or ethereum.
Pegging their currencies to traditional currencies aims to provide investors with greater certainty and security.
But Terra and many other stablecoins are not backed by any revenue streams, and instead rely on algorithms to move funds quickly between cryptocurrencies as they rise and fall in value.
The Luna Foundation Guard, which supports Terra, said Monday that it has deployed the equivalent of $1.5 billion in cryptocurrency to stabilize the currency.
Coin founder Do Kwon said on Twitter on Tuesday that he is about to present a plan for recovery.
But Terra continued to crash, possibly caught in a massive cryptocurrency sell-off that this week saw bitcoin drop to its lowest value since last July.
US Treasury Secretary Janet Yellen told a Senate committee on Tuesday that the Tira incident illustrates “that there are risks to financial stability and we need an appropriate framework.”
Anto Paroian of hedge fund ARK36, which specializes in crypto assets, said that regulation in the long term would be “net positive for the crypto space.”
“But if stablecoin issuers are regulated as rigorously as banks, it could stifle one of the most innovative, thriving and important sectors of the cryptocurrency market,” he added.
– With AFP