What’s Behind the $2 Trillion Cryptocurrency Crash? Mark Cuban has an answer

Even in a market known for its volatility, cryptocurrencies have seen a wild decline in recent months, with individual digital tokens dropping to their two-year low and the total industry now worth nearly $2 trillion in losses since the end of the year. last year. †

Some empire champions say the crisis is only part of crypto’s evolution and point to similar upheavals since the early days of internet companies, which eventually found a somewhat more stable path.

But what exactly is driving the recent decline in cryptocurrency values, and what may or may not be telling us about where the digital currency world is headed?

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The overall economy is in the tank: When it comes to tough times, the cryptocurrency market isn’t alone in seeing steep declines since a very recent number of salad days when consumers were teeming with cash, interest rates were low and the world finally got out of the restrictions imposed by the COVID -19 pandemic.

Everything is currently in the rearview mirror as US inflation continues to climb to a 40-year high and the Federal Reserve tries to thwart rising consumer prices by raising interest rates per benchmark, as it did on Wednesday, this time by a staggering 0.75 . %, the largest increase since 1994.

A lot of money has been poured into crypto investments during the pandemic, but as national and global economies began to show signs of moving south, finicky crypto owners fled en masse, taking a market value fee with them when they left. gate.

When a hedge is not a hedge: Once widely touted as a hedge against inflation and volatile stock market swings, cryptocurrencies have instead proven to be more than nothing like the good old speculative stock trading.

Jamie Burke, CEO of venture capital fund Outlier Ventures, said the crypto behaves exactly like a stock, and the two run parallel because the lines between them have blurred, Wired said. Skyrocketing prices and feverish hype surrounding the crypto have sucked in a lot of new cash as institutional and private investors spend their incentive money on the stock trading platform Robinhood.

“Digital assets began to be tied to the larger macro environment,” Burke told Wired. “A lot of money has entered the financial system. They started using it to speculate, so crypto certainly took advantage of it. But likewise, when the broader macro environment changes, it is reflected negatively in digital assets.

Ships at low tide: As crypto stocks have fallen, companies that have adopted strategies that have relied heavily on sustained gains in value are showing their cracks.

Celsius, which takes and lends cryptocurrency deposits from individuals, stopped withdrawing as it faced financial difficulties, according to NPR. Binance, a cryptocurrency exchange, stopped withdrawing bitcoins for several hours last Monday.

The Celsius issues are undermining confidence in the broader cryptocurrency space just weeks after a stablecoin called TerraUSD collapsed, per NPR, and crypto firms are responding by reassessing their plans for the future.

One of the most active crypto exchanges in the US, San Francisco-based Coinbase, caused a stir when it went public in April 2021, reaching a valuation of approximately $100 billion. The stock has been sluggish since last November and had a market cap of about $11.4 billion at the close of regular trading on Friday.

Now the company, which brokers transactions for those looking to buy, sell, transfer or store more than 100 different cryptocurrencies, is making drastic reductions in its workforce and, according to company management, is adapting what could be an extended lull for digital tokens. to be.

Coinbase CEO Brian Armstrong pointed to a potential recession and the need to control Coinbase’s burn rate and increase efficiency, according to CNBC. He also said the company grew “too fast” during a bull market.

“We seem to be entering a recession after an economic boom of more than 10 years. A recession could lead to another crypto winter and could last for an extended period of time,” Armstrong said in an email to CNBC.

He added that recent crypto winters have led to a significant drop in trading activity.

“While it’s difficult to predict the economy or the markets, we always plan for the worst so we can operate the business in any environment,” Armstrong said.

Not bad at all : Billionaire tech entrepreneur Mark Cuban is a fan and investor in cryptocurrencies and their underlying blockchain technology. and Internet companies in the early 2000s, according to Marketwatch,

Cuban believes the fall in value will have a purging impact on the entire crypto sector, and companies that have failed to develop a good business practice strategy will disappear.

“In stocks and cryptocurrencies, you see companies that were backed by cheap, easy money – but that didn’t have a good business prospect – will disappear,” says the ‘Shark Tank’ investor. and owner of the Dallas Mavericks at Fortune this week. “As (Warren) Buffett says, ‘When the tide goes out, you can see who’s swimming naked.'”

And Cuban believes that in turbulent times, new opportunities will arise for crypto entrepreneurs.

“Disruptive apps and technologies released during a bear market, be it stocks, crypto or any other business, will always find a market and be successful,” Cuban told Fortune.

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