Is this market crash the end of crypto?
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Loading... - Kuntum Chua
- 06 Jul 2022
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During the last few years, Bitcoin switched from being an asset that no one paid attention to, to an asset that nearly everyone was looking to own, and then to an asset that many suspect of being a scam. There are certainly many opinions about Bitcoin. Some believe it is the future of finance, while others believe the energy involved in mining it harms the environment. Regardless of what you think about the crypto coin, the recent collapse in its price has prompted many to reconsider whether Bitcoin is really all that it is made out to be. The questions that loom in most people’s minds now is whether it will continue collapsing, or rather recover – and what its path means for crypto assets at large.
Bitcoin as a benchmark
As the first mover in this space, Bitcoin’s price usually sets the path for other crypto assets to follow. Its price is currently trading at around 19,000 USD per Bitcoin (at the time of writing), which is nearly a 78% retracement from the peak registered in November 2021. Should the price continue falling to below 15300 USD, it might even drop as low as 417 USD, the last level of support in this downtrend. It is still yet not certain whether the downtrend is to continue.
Factors behind the decline
A key factor contributing to that downtrend is the rising interest rates on the US Dollar. It is more attractive now to hold the US Dollar than to hold a cryptocurrency which does not have any yield. Moreover, the risk-off sentiment in the market is certainly another factor making the Dollar more appealing and risky cryptocurrency less sought after. The downtrend will likely reverse should one or both of those factors change. There are no such indications in the current market environment, though.
Bitcoin matters not only in its own merit, but also as a benchmark for other digital coins, as it is the most traded cryptocurrency. In essence, cryptocurrencies are intangible instruments. They have helped people earn money with their spikes in price, but fundamentally they do not generate value like a business does, and thus cannot replace one’s nine-to-five, which is Bill Gates’s main criticism towards those instruments. This, however, does not mean that they won’t appreciate in price.
In addition to cryptos’ inability to generate value or yield, they have also been accused of adding to environmental problems. Mining cryptocurrency is an energy-intensive process and energy prices have spiked recently. It can be argued that this energy could be better channeled to warming up houses and powering up factories instead of solving algorithms that give you an intangible coin.
Bitcoin and the blockchain have thus far barely delivered on many of their promises or solved fundamental problems in the financial sector. Thus, they are still far from becoming mainstream currencies or replacing fiat currencies.
The final verdict
Cryptocurrencies have not died yet, though, like equities, they seem to have entered deep bearish territory. Even though fundamentally those coins do not have intrinsic value like shares in businesses, they can still go up in price, buoyed by speculators who still have faith that the price of Bitcoin will reach 100,000 USD. This might be an exaggeration (or not), and regulatory pressures might hold back any such moves. However, if you want to catch a rising trend in those assets, then watching the risk sentiment is key at this stage. Read More...
