The world’s second-largest cryptocurrency, Ethereum, has joined the cryptocurrency crash — its value has fallen 20% in the past 24 hours — as the digital currency slowdown hammers investors who bought during the Covid years.
Cryptocurrencies have fallen sharply in value in recent days as fears about the global economy spread and investors started selling risky assets.
However, investors in more traditional stocks have also suffered, as US technology stocks have also plummeted in recent weeks, including Amazon, which has fallen 30% in a month.
Many amateur investors bought stocks and digital currencies during the Covid pandemic and made money as values generally rose in a so-called bear market.
Ethereum has now lost more than half of its value this year, Bitcoin has lost a third of its value since January and Luna wiped out 98% of its value overnight with suicide hotlines that are on the Reddit page currency accordingly. fastened.
Popular digital currency exchange Coinbase has warned users that they could lose all their money if the company goes bankrupt – after the downturn, its share price fell by 27%.
WHAT ARE CRYPTOCURRENCES?
A cryptocurrency is a digital currency that can be used for online transactions.
It’s the internet version of money: unique pieces of digital property that can be transferred from person to person.
All cryptocurrencies use the “blockchain” and only one can be created and shared using specific agreed-upon rules. The rules are slightly different for each cryptocurrency.
People can buy bitcoins through exchanges such as Coinbase and Bitfinex.
Bitcoin was the first cryptocurrency, created in 2009.
Other currencies such as Litecoin and Dogecoin do the same, but have slightly different inflation levels and rules around transactions.
Currently, about 270,000 transactions take place every 24 hours.
These currencies do not exist as physical or digital objects. It’s simply a collective agreement with other people on the network that your currency has been legitimately “mined”.
Blockchain is the record of changes in ownership of a currency broadcast over the network and controlled by computers around the world.
The network works by exploiting the greed of individuals for the collective good.
A network of tech-savvy users called miners keeps the system fair by pouring their computing power into a blockchain, a global count of every bitcoin transaction.
As long as miners keep the blockchain safe, counterfeiting shouldn’t be a problem.
However, as cryptocurrencies allow people to exchange money without a third party getting involved, they have become popular with libertarians as well as techies, speculators and criminals.
During the pandemic, historically low interest rates, intended to stimulate economies, led investors to buy riskier assets such as cryptocurrency with higher returns.
As rising inflation drives up interest rates to protect savings, these assets are being sold in favor of safer government bonds, which will offer better returns.
The Bank of England raised interest rates by 0.25% on May 5 to a 13-year high of 1%.
The Federal Reserve also raised interest rates to 1% on May 4, with further hikes expected to ward off the worst effect of inflation.
The NASDAQ saw its biggest one-day drop since June 2020 earlier this week, and the crypto hit implies growing integration between the crypto and traditional markets.
The index, which includes several top tech companies, ended May 5 at $12,317.69, with shopping sites like Etsy and eBay leading the fall.
Both companies saw their values fall 16.8% and 11.7% respectively after announcing earnings estimates that fell below expectations.
Previously high-flying technology stocks have begun to fall dramatically in recent months, fueling fears of a broader economic crash and making investors less likely to buy assets.
Elon Musk’s Tesla fell 36% last month amid news of the eccentric CEO’s attempts to buy Twitter.
The electric car maker is now trading at £600, a dramatic drop from £937.69 a month ago.
Delivery giant Amazon has seen its price drop 30% since April 11, with stock reaching £1,725.19 today, down £2,468.75 from £2,468.75.
The fall in these stocks is fueling fears that the “dot.com bubble” of the early 2000s is about to repeat itself.
In the late 1990s, increased access to computers and the Internet led to large-scale speculative trading in Internet companies.
The interest has resulted in a very high valuation of companies with the suffix “.com”.
After the US Federal Reserve raised interest rates after the boom of the 1990s, speculative trading collapsed and caused the dotcom bubble to burst, causing values to plummet.
The turnover volume of crypto exchanges, which contain the “blockchain” ledgers that record transactions, has already fallen sharply.
“Cryptocurrency sell-offs were driven by the discouraging macro backdrop of rising inflation and interest rates that sent shockwaves through the tech sector and swept cryptos, confirming that Bitcoin and others serve no purpose as an inflation hedge,” said Victoria Scholar, chief investment officer. employee at Interactive Investors.
Luna lost its peg to the dollar this week, falling below $1 per coin, causing prices to plummet as the industry panicked (similar to a run on a bank).
“The Terra incident is causing panic in the industry as Terra is the third largest stablecoin in the world,” said Ipek Ozkardeskaya, chief analyst at Swissquote Bank.
But TerraUSD “failed to deliver on its promise to maintain a stable value in US dollars”.
The crypto crisis has wiped out more than $1.5 trillion in value from the markets, but investors are still hopeful that prices can recover as they have in the past.
However, unlike previous crashes, experts believe this latest price drop may turn out to be permanent due to wider fears of the global recession.
Bitcoin peaked at £16,194.81 on December 17, 2017 before dropping below £9,000 five days later, losing nearly 45% of its peak.
The price returned to pre-crash levels in November 2021.
The delay has led Coinbase, an online trading platform, to issue a stern warning to customers: your crypto is at risk if the exchange goes bankrupt.
According to the official Coinbase website, the company has more than 98 million verified users. It is the largest cryptocurrency exchange in the United States.
Coinbase CEO Brian Armstrong tried to calm shareholders in a series of tweets, one of which read, “Your money is safe with Coinbase, as they always have been.”
Despite Armstrong’s claims, the company referred to customers in an SEC filing as “unsecured creditors” in the event that Coinbase went bankrupt.
This means that client crypto assets are considered to be property of Coinbase by bankruptcy administrators.
The SEC filing, Staff Accounting Bulleting 121, requires crypto platforms to include client crypto holdings as assets and liabilities on their balance sheets.
Armstrong wrote on Twitter that the company was “not at risk of bankruptcy” despite the filing, which he said was made to bring the company into compliance with SEC regulations.