Cryptocurrency Prices are Tumbling. Why?

Fredrick Awino
17.05.2022
160 Views

Cryptocurrencies in their varieties names continue to get a lucrative space in the minds of budding investors. Investors today do not necessarily focus on the traditional stocks but look outwards to something new, a new experience of sorts. The cryptocurrency is an opportunity for such adventure-seeking investors.

Today, there are a lot of conversations around bitcoin, Ethereum, dogecoin, Binance coin, Litecoin or other variants which somehow gives them a place of prestige in the currency and investment market. Despite the growth in acceptance that cryptocurrencies enjoy, their fluctuating performance and sensitivity to global trends is always a source of concern. You can never imagine what next big thing is going to happen in the global scene that will send you crypto holding prices tumbling.

Without necessarily portraying cryptocurrency as a wild investment option or something not worthwhile, the recent shocks that they have witnessed is a talking point. Of course you understand that cryptocurrency as a whole works on volatility in the market which is something very unpredictable. It may be hitting a all time high only for things to turn differently in the next. It would then be permissible to say that crypto is an investment for the high risk takers who can play around tumbling prices.

What Might be the Reason Behind that?

Just like any other asset, crypto is a risk asset. Basically, they are not considered stable assets as they do not store value. It is because of this reason that we can see the general market is selling off. Over the past few days, cryptocurrency prices have tumbled, and one of the main reasons is that they are unstable. 

The impact of the tumbling currencies is felt globally. About 40% of the Bitcoin holders lost money that they invested in the business. Moreover, the loss of money has made investors sell their stakes, and this is what is causing a tumble in the prices. 

Calamitous failure of crypto?

In May, Terra was stopped for about two hours. Before it was shut down, the value of each unit had tumbled to about 23 cents. Therefore, it is believed that it is the calamitous failure that has highly contributed to the crypto sell-off. 

If the cryptos continue to tumble, then there will be more declines resulting in forced sales, especially for the individuals who borrowed to buy. For instance, the newly listed crypto in the CoinMarketCap may fail to zero. One may invest in crypto using borrowed money taken from consumer loans or from individuals. However, this issue may make some of the cryptos be considered blatant frauds. 

Traders are Opting for Safer Options

Crypto is considered a gamble. Currently, the fade in the crypto costs does come from the buyers who react to the things that take place in the economic system border. In a case where the inventory market stumbles, then most of the buyers are forced to transfer their money to less dangerous investments such as the United States Treasury Bonds. 

The Bitcoin buyers do weigh various investment choices and transfer their funds later back to where they started from. In November last year, Bitcoin was trading at $69,000, but analysts have predicted that it may fall to as little as $25,000 in the coming months. There are very slim chances that it may rise up. 

Trillion-dollar losses

In the past, traders have lost so much money while trading in cryptocurrencies. However, this does not mean that the cryptos may not rise again. The cryptos will rise in the future as they have done in the past. The losses, however, have a negative impact on the traders because they believe that they may lose money because of the tumbling when they decide to invest in cryptocurrencies such as Bitcoin. 

Mainstream adoption lagging

Most people agree that cryptocurrencies have grown higher over the years in terms of financial services. Besides, most of the investors have purchased the bitcoins using Robinhood and Cash App. Globally, most companies have accepted that their consumers utilize bitcoin as a way of paying for services and goods. Also, El Salvador even considered it a legal tender. 

We must also agree that the adoption of Bitcoin as a form of currency seems to be taking longer. Since its adoption over ten years, some governments still do not consider it legal. It is basically seen as a wait-and-see mode. 

Intense Volatility 

Crypto volatility is actually its selling point because the better an investor is at monitoring trends, the higher chances of getting a super profit trade. However, when the volatility is so drastic and chaotic, the whole market becomes too unpredictable. This is what crypto has been undergoing in the recent past that elicits questions about their reliability as a next investment frontier.

Recently, the Federal Reserve increased the interest rates by about half a percent. In return, Wall Street made a response using high gains in the stock market. A day later, the investors in the crypto market reversed the market and even sent the markets to what is considered a nosedive. It is this process that tumbled the prices of cryptocurrencies. 

In recent days, cryptocurrencies have trended in the stock market. Most people think that crypto like Bitcoin is not doing so well because the prices have reduced. The reduction is a disadvantage because it makes more people sell cryptos. 

Bitcoin is believed to be stuck mainly in the sideways circle. The issue makes traders not have confidence in investing in the cryptos. Even though there is long-term potential value, one still must put up with this volatility. 

Crypto is Currently Linked with Equities

Most of the individuals who have invested in cryptocurrency believe that crypto, such as Bitcoin, is just a new version of gold. It is only that it is currently in a digital era. However, in the market of cryptocurrency, it does not seem to be considered a volatile asset. Besides, people do not consider it a reliable source for storing value in the case of economic uncertainty. 

Historically, gold has been having an inverse relationship with stock prices. Even though the stock prices of gold have reduced, the prices are still up by about 3%. Moreover, the selling pressure is mainly driven by fears regarding the high inflation rates in the United States. 

Therefore, the things that have affected the market prices of Bitcoin include high-interest rates, the Ukraine war, and inflation. Therefore, the prices of the cryptos are going down because of the negative economic influence. It is just the people who invested in the cryptos earlier on that have made a killing. Unfortunately, the market is currently having a history of high volatility, and this is not what its investors are looking for, considering the uncertain market conditions. 

Internal Governance

The crypto networks do not abide by a set of static rules. The developers have adapted projects based on the community utilizing them. Some of the tokens, government tokens, offer their holders a say in the project’s future, including the way a token is utilized or even mined. Thus, in making changes in token governance, the stakeholders must have a consensus. 

The cryptos prices are going down since most investors love stable coins. Although there may be flows in the operations, investors just like the devil they know. They love things that they believe in not what they do not know. Besides, in stable governance, where things are hard to change, offering stable pricing is all that is needed by the traders. 

Competition across cryptocurrencies

Currently, there are several cryptocurrencies existing, with new tokens and projects launching daily. Although the barrier to entry is low, developing a viable cryptocurrency relies on developing a network for cryptocurrency users. Therefore, what should happen is working toward building a network that limits competition. 

Author Fredrick Awino