Bitcoin bonfire: why crypto assets are collapsing

Bitcoin’s price plummeted this week

The rapid spread of cryptocurrencies such as bitcoin has recently inflated a volatile sector to a valuation of around two trillion dollars.

A week-long rout wiped out tens of billions of dollars from that value and spread panic across the market.

Bitcoin blue

Bitcoin is the leading cryptocurrency and its value accounts for the lion’s share of the entire industry.

This week, its price at one point plummeted to $ 25,500, less than half its record price from November last year and the lowest valuation since it exploded in late 2020.

“Fears of rampant inflation and the sudden end of the era of cheap money have plunged cryptocurrencies to the brink,” said Susannah Streeter of Hargreaves Lansdown, referring to the Federal Reserve’s new monetary tightening policies. US and other central banks.

He said the new environment has prompted investors to “flee risky assets”.

Bitcoin began to slide at the same time as stocks of tech companies, but the collapse was most pronounced in the volatile cryptocurrency sector.

Many other coins also lost value, including the second most important, ether, which plummeted by a third over the course of the week.

Coins not so stable

Since the largest cryptocurrencies are notoriously volatile, entrepreneurs have come up with a theoretically more reliable alternative known as stablecoin.

These currencies, which constitute a market valued at approximately $ 180 billion according to a March estimate by the US Fed, are pegged to the US dollar or other fiat currencies.

But this week one of the biggest, land, spectacularly lost its peg to the dollar and plunged to just 10 cents in a phase on Friday.

Terra is one of many such coins to rely on a complex trading mechanism in other cryptocurrencies to support its peg, rather than being backed by fiat currency funds.

Analysts including JP Morgan have warned that Earth’s death spiral has raised broader questions about the viability of algorithm-based stablecoins.

The “potential crash” has also “soured sentiment among cryptocurrency investors” in a broader sense, the US bank said in a note to clients.

Companies in crisis

PayPal’s decision to accept bitcoin in late 2020 helped kickstart a precipitous rise in the value of crypto assets, driven in part by the feeling that digital tokens could potentially function as currencies someday.

But closing cryptocurrency payments remains notoriously expensive, time-consuming, energy-hungry, and unreliable.

However, cryptocurrency companies found that their values ​​were exploding, none other than Coinbase, a licensed exchange in the United States and listed on the New York Stock Exchange in April last year.

Its shares were worth more than $ 400 each in one phase, but this week they just crossed $ 50.

“Volatility is inevitable. We can’t control it, but we plan for it,” Coinbase boss Brian Armstrong blogged Thursday.

“I just know that we will make it to the other side and come out stronger than ever if we focus on what matters: building.”