Cryptocurrencies have long been known for their volatility, but their fall in recent months has been particularly sharp, with many individual digital tokens hitting their lowest marks in two years. Overall, the sector has seen a loss of nearly $2 trillion in value since the latter part of last year.
Price data compiled by CoinGoLive shows that 72 of the top 100 tokens have recently dropped more than 90 percent below their all-time highs. Larger-cap coins have been performing better than the rest of the pack, with nine out of the top 10 cryptocurrencies by market capitalization dipping less than 90 percent in the current downturn. For example, the biggest crypto, Bitcoin, has fallen 70.3 percent from the high of $69,000 noted in November 2021, while Ether has fallen 78 percent from its recent high of $4,878.
Many of the cryptocurrencies that are now experiencing big drops have seen a big portion of their losses take place during the past week, when the total cryptocurrency market cap decreased 24 percent to $996 billion from $1.3 trillion.
Although some observers believe that the slump is simply an expected and natural part of cryptocurrency’s evolution, others believe that it could be part of a trend that is here to stay.
What is behind the recent drop in cryptocurrency values?
Part of the crypto market’s problem could be an effect of the overall economic downturn currently being seen in the face of high inflation. It wasn’t that long ago that the world started emerging from COVID-19 restrictions, interest rates were low, and many people had plenty of spare cash to spend on cryptos.
Now, however, U.S. inflation has been rising to 40-year highs and the Federal Reserve is struggling to keep consumer prices from spiraling out of control. They raised the benchmark interest rate recently by .75 percent in the biggest hike seen since 1994, and many are concerned about where the economy is headed.
Although crypto investments were fairly high during the pandemic, now that domestic and global economies are experiencing tough times, many crypto investors are bailing and taking market value with them.
Although cryptos were once hailed by many as a hedge against inflation and the swings seen in equity markets, they are now bearing more similarities to speculative stock trading. In fact, in some ways, cryptos and stocks are moving in lockstep as the lines between them blur. Crypto hype brought a lot of new money in, especially stimulus money, and now that the wider macro environment is changing, digital assets are bearing the negative effects.
It is not unusual for investors to start selling off riskier assets when the threat of a recession is looming. The CEO and co-founder of Coinbase, Brian Armstrong, wrote in a recent blog post announcing company layoffs: “A recession could lead to another crypto winter, and could last for an extended period.”
The president of cryptocurrency exchange FTX U.S., Brett Harrison, is now pushing for greater government regulation of the industry in light of its massive losses.
Speaking on CNBC’s Squawk Box, he remarked: “There’s been a time for extreme experimentation in crypto, and that’s why it’s so important to get proper regulation, especially in the U.S.
“Hopefully, one thing that we’ll get from this current crypto winter is coming out much stronger with better risk management, more reliable systems and companies.”
He believes that greater regulation could remove actors who bring risk to the system and help crypto become the “mature industry” he believes is possible.
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