The price of cryptocurrencies, most notably the likes of Bitcoin, Ethereum, and Solana have reached new lows. Bitcoin has been trading at a mere 19000 USD, Ethereum at 1050 USD, and Solana at 30 USD. In November, the same currencies were traded at 68000 USD, 4800 USD, and 260 USD respectively. The factors responsible for this decline; the crash of Terra Luna, threats of inflation and recession, and the lockdown of Celsius, among many other factors.
The Fall of Terra
Terra Luna, a supposed “stablecoin”, plunged 99.99% in value. One year ago, Terra was trading at an average of 11 dollars. Forward to April 2022, it reached an all-time high of 116 dollars. Hence, investors who got in early reaped massive profits due to this growth. Consequently due to this growth however, many “whales”, or investors with a significant amount of cryptocurrency, liquidated their holdings. Investments from smaller investors were not enough to counteract the overflow from Terra to USD, causing a plummet. The collapse of Terra took out $40 billion from the industry and instigated further sell-offs across several other chains. It was more significant than others due to the stability and reliability that came across with its name. The collapse of such a reliable currency caused mass panic, instigating the sales of many other currencies as stated before. Below is a chart from coinbase.com showing the growth and fall of Terra as well as the current price, a mere $0.000129.
Additionally, top crypto lending platform Celsius announced that they were pausing all withdrawals and trades of crypto on their platform. 1.7 million people entrust Celsius with their crypto. Their reasoning was due to “extreme market conditions” instigated by the upcoming recession, as well as the fall of Terra. Simply stated, people were locked out of their accounts and watched their portfolios drop as others cashed out in fear of being stuck in similar situations. This event happened just a month after the TerraUSD collapse. Hence, the outflow cause the value of cryptocurrencies, which reached $3 trillion in November, to fall below $1 trillion.
Challenges to Crypto
Among the fall of Terra and the lockdown of Celsius, crypto has faced major challenges recently. For one, interest rates and inflation. In efforts to keep up with inflation, The US Federal Reserve increased the rate of interest. Raising the rate of interest is a sign of an upcoming recession, causing mass panic as well as preparation. Following the news, the stock market, as well as the crypto market, experienced a huge crash as investors sold off assets in an attempt to prepare for a recession. Popular currencies such as Bitcoin, Ethereum, and Solana all lost value. In addition, global lawmakers are finally arriving at the topic of crypto and NFTs and the means on how to regulate them. India seeks to prohibit cryptocurrencies. Similarly, Russia has proposed banning the use and mining of cryptocurrencies.
As mentioned in a previous article, investors who cashed out are preparing for an almost year-long recession. However, in contrast, many people are also investing at the dip. This shows life for the crypto ecosystem, and hopefully, a full recovery and growth side by side with stocks and the economy as we overcome the recession.
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