The Collapse of Cryptocurrencies. What’s Happening?
17 de March de 2022
17 de March de 2022
Is the crypto party coming to an end? Bitcoin and other virtual currencies are facing a less than promising 2022. In just 10 years of history, the upwards trend has been mostly constant, with just a few bumps on the road that never hampered the crypto fever. However, since last year, after a spectacular climb during the first trimester, the signs of exhaustion began to show.
Since November, with the highest peak above 56,000€, the price of Bitcoin has been falling and is now at 35,000. Alarms didn’t take long to go off, especially during January, when it experienced the hardest blow. Besides Bitcoin, Ethereum lost 49% of its value and Dogecoin, 56%. In just two days in December, the sector lost 2,200 million dollars in value. Cryptoasset companies were the first to experience the consequences of these blows, which only increased the skepticism and even caused problems in the regular stock market.
Business and stock markets are not disconnected from the world. In fact, they are absolutely dependent on context. This situation takes place in the cryptocurrencies market as well, even though it seemed that, until now, the state of euphoria seemed to be immune to whatever happened outside the blockchain universe. Although the first manifestations came earlier, the fall of cryptoassets were exacerbated by coronavirus' omicron variant that appeared at a time when everyone thought the pandemic was coming to an end.
All of the faint signs of recovery have had to face the rise of international problems and the break of the conflict in Ukraine, whose reach is still unsuspected. For some months now, cryptocurrencies’ dependence on the world stock markets has grown. And the fear in the markets could have a negative impact on virtual coins which, in turn, can drag the stock market down with them. A clear example of this are cryptocurrencies trading platforms such as Coinbase, which is listed on the stock exchange and has seen investments fly away, taking with them more than half the value of the company.
It’s been a long time since the United States and Europe last experienced such a growing inflation — an already complex situation that has been worsened due to the geopolitical context. Faced with this situation, central banks have started to take action. In fact, in January, the American Federal Reserve decided to raise the types of interest. This situation puts off investors in troubled waters.
According to Coinbase, “a feature of cryptocurrencies (especially of Bitcoin) that makes them so attractive for investors is the idea that they can stand inflation better than fiduciary coins such as the American dollar”. In this sense, cryptocurrencies could have protection, and even serve as shelter. But, in practice, the problems of traditional coins seem to rub off more often than not onto cryptocurrencies.
Another aspect that could be deemed “interventionist”, has to do with the production of cryptocurrencies. It would entail the regulation or prohibition of mining, an essential process for electronic currencies like Bitcoin. Mining consists of the exploitation through the use of computers in order to solve the algorithms set by the network and that, once solved, are rewarded with incentives — usually cryptocurrencies units.
Mining expanded soon throughout China, and it’s precisely the prohibitions in this country that are responsible for most of the value drop of virtual currencies. In October, the Asian giant added cryptocurrency mining in their black list of activities. The collapse was immediate. But that’s not all regarding bad news for mining. In January of this year, Russia and the EU announced restrictions on this activity that can lead to an eventual prohibition.
It’s true that the setbacks regarding virtual coins have been severe and many have occurred during the last semester. So much so, that Bitcoin’s value was cut in half in July 2021 and, following an ascend in November, it hasn’t gone up again. But experts think we’re far from seeing the end of cryptocurrencies — this is rather a tension process due to regulations and economic and sociopolitical circumstances. Volatility is an identity trade of many electronic assets since their inception: it’s such a disruptive novelty that it’s exposed to substantial ups and downs.
At the moment, the future of cryptocurrencies is being decided. So far, it’s been moving forwards almost on its own, but it’s beginning to converge with fiduciary currencies and state interests.