It’s been a scary few years for the crypto market with prices fluctuating rapidly. 2022 in particular is one of the more trying times for crypto investors worldwide.
From this writer’s perspective, we’re a long way from the heady days where Bitcoin valuations regularly broke the $60,000 mark. As of the 8th of August 2022, Bitcoin prices have settled somewhere around the $24,000 mark with investors remaining somewhat bullish.
However, given past historical data, we can’t exactly be sure what to expect in the days to come. So with that in mind, it’s important to find the best wallet for multiple cryptocurrencies, so you can diversify your assets.
Let’s take a look at what’s behind this recent bout of volatility.
Why Are Crypto Prices Crashing?
Here are 4 reasons why we’re seeing a downturn in all cryptocurrencies at the moment.
1. Cyclical nature of crypto
Some experts believe that the recent bear market trends are all part of the cyclical nature of cryptocurrencies. It all starts with investors flooding the market in response to rising prices. This overall increase in demand places upward pressure on prices which again attracts more investors.
As prices reach a critical point, whales begin liquidating their holdings which leads to a sudden increase in supply. Consequently, this opens the floodgates as investors rush to crystallize their holdings.
Looking at Bitcoin’s historical data, we’ve seen various peaks and troughs. For example, after the 2018 price peak, crypto prices once again dipped before peaking and breaking new records again.
Some believe that we are currently living through another one of crypto’s low points and prices will probably rise once again in the years to come.
2. Fears of a global recession
2022 has been a wild year for everyone. With conflict raging in Europe, investors were naturally displaying risk-averse behavior. As a result, the market as a whole was hit hard by the overall sentiment on display.
With the S&P 500 in a bear market, investors have begun tightening their purse strings. Because of this, volatile assets such as cryptocurrencies were viewed as being too risky to hold.
While institutional investors helped drive up crypto prices during the peak, we are now witnessing the opposite effect as they begin pulling out. And because of this, crypto valuations have taken a hit as the market corrects itself.
Given the unregulated and decentralized nature of crypto assets, it’s easy to see why institutional investors have balked at the prospect of holding cryptos.
3. TerraUSD & Luna crash
Stablecoins have long been viewed as a bastion of stability in an unstable ecosystem. This is because such assets are backed by real-world fiat currencies such as the USD or GBP.
However, when TerraUSD and Luna valuations disappeared overnight, any credibility gained thus far was entirely destroyed. This shook up investor confidence and has since led to a massive selling-off of assets.
Prior to the incident, investor sentiment for cryptocurrencies was already beginning to cool. But the situation was exacerbated when more than $400 billion in value disappeared overnight and many investors were bankrupted.
Predictions For The Future
Crypto has weathered more than its fair share of storms. And with each crash, naysayers would claim that it was the end of cryptocurrencies as we know it.
But as we’ve seen, this is far from the truth and digital assets still remain present. While it is unlikely that crypto will become entirely worthless, it will be interesting to see what comes next.
If you intend to buy the dip or invest in crypto, remember that the market is extremely volatile and you should be prepared to lose everything. Make sure that you understand the risks and nature of the assets you’re investing in.
This is in no way a guarantee or offers to invest in crypto assets. Cryptocurrencies are not backed by any governments or banks and should be treated with extreme care. That being said, invest at your own risk.