Home Markets Why is the crypto market crashing and will it ever recover?

Why is the crypto market crashing and will it ever recover?

Why is the crypto market crashing and will it ever recover?
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According to a study by CoinMarketCap, in May 2022, the crypto market fell over $800 billion. The reputation of cryptocurrencies and their economies has been hit hard due to the downfall of the world’s most famous crypto, Bitcoin. On May 12, the value of BTC fell to $26,600. In early August, its value fell to $23,300. Simultaneously, the Ethereum cryptocurrency, BTC’s main competitor, also lost almost 40% in value from April. So what is happening in the cryptocurrency market, and why? Is it doomed to total collapse and will it rise again from its ashes?

Why are cryptocurrencies losing value?

Although the world is talking about BTC and Ethereum, all cryptocurrencies are in crisis. This is because Bitcoin sets the trends in the crypto market and is considered the “gold standard” compared to other coins. Therefore, if bitcoin falls, other currencies also fall. why is this the case?

Recently, bitcoin has become much “closer” to the US dollar and is affected by Federal Reserve monetary policy. Due to the coronavirus, when regulators were forced to relax the conditions for the creation and distribution of cryptocurrencies, the crypto market became fertile ground for developing old and new projects. However, after the pandemic passed, the Fed tightened regulations again. As a result, it is no surprise that the crypto market is down.

What are the experts saying?

According Alex Reinhardtcryptography expert and founder of Ultima PLC Part, cryptocurrencies fell due to rising interest rates, global inflation, and the strengthening US dollar, which once again “suppressed” alternative currencies. The pessimistic forecasts that experts have started making about cryptocurrencies have also undermined the community’s trust in them, which often leads to the development of certain coins. This is why cryptocurrency differs from other assets such as bonds, stocks, real estate, etc., which are considered independent of external factors. However, as Alex Reinhardt points out, when the world goes through an economic crisis, a social crisis begins, which unsurprisingly increases the existing risks of all current financial instruments.

Another reason is people’s irresponsible attitude towards participating in the crypto market. Many perceive coins as “luxury items” like artwork, gold, or jewelry, buying them long-term as a way to save money and protect it from inflation. However, cryptocurrency has no physical value, despite being a financial instrument. When you haven’t used your lawnmower for a long time, it starts to rust – the same goes for coins, which have no practical use in real life.

Approaching cryptocurrency as something of real value is inefficient. Users create the value of any cryptocurrency. They decide how to use it, whether to believe in it or promote it. Therefore, no community is equal to any coin. This begs the question:

Is there a chance for recovery in the crypto market?

Technically, there is currently no sign of a reversal of this trend. According to the CEO of Bitnalog, we cannot expect positive changes in the market until at least the beginning of autumn. BTC will rebound quickly if the US Federal Reserve changes its policy on financial instruments (including the stock market) and returns to easing conditions. However, inflation must first be resolved for the global economy to stabilize. Much also depends on geopolitics and the US elections in November.

Alex Reinhardt is more optimistic about cryptocurrencies. Only the small players are leaving the market, while the big investors, used to playing the “long” game, remain. They will likely bring the market to its knees because experienced investors increase their capital, including technical capital, during a recession. For example, mining equipment has also lost value due to the depreciation of bitcoin. It is therefore not just a “collapse” of the crypto market but a reset, when investors become aware of their responsibility in the development of the projects, then when the relations with the regulators, still controversial and problematic, are finally stabilizing.

Also, keep in mind that there are still exclusion coins, which manage to stay afloat even in a crisis. For example, PLC Ultima, thanks to its developed ecosystem, offers its users countless possibilities to use PLCU in real life. For example, investing in projects on a crowdfunding blockchain platform, earning passive income, or buying goods with PLCU and other cryptocurrencies across Europe using the marketplace. Also, as mentioned above, the community shapes the value of cryptocurrencies, so these coins used daily in different countries around the world are guaranteed to survive and grow over time.

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