The ongoing crash in the crypto market has shed roughly $1 trillion in value since November 8, and could decline further as “crypto winter” takes hold.
Crash, rout, collapse: there are not enough words to describe the state of the crypto market since the beginning of the year.
Most cryptocurrencies have gone into free-fall following all-time highs reached in early November.
Market value has shrunk by about $1 trillion compared to Nov. 8. The world cryptocurrency market was worth more than $3 trillion for the first time, according to CoinGecko, which tracks prices of thousands of tokens.
Its value has decreased to $2 trillion as of Jan. 19.
Ethereum, the second largest cryptocurrency by market capitalization, which reached $4,878.26, an all-time high, on Nov. 10, is currently trading at $3,100, a drop of 36%.
Bitcoin’s losses are even greater: the king of crypto has lost 39.5% of its market value since setting a new record at $69.044,77 on Nov. 10. Bitcoin prices sit around $41,786.40 as of Jan. 19, a fairly steep decline, even for a notoriously volatile financial asset.
This is the fifth consecutive week of decline for most cryptocurrencies.
Evangelists are reduced to reminding skeptics that a year ago crypto prices were much lower.
Why Does Crypto keep crashing ?
Crypto crash coincides with the general decline in high-growth technology stocks, which is primarily the result of the Federal Reserve’s plans to taper asset purchases and raise interest rates several times this year.
At the same time, many investors seem to be realizing how volatile crypto can be, according to UBS’s analysts. This is compounded by the limitations of blockchain technology that could make it harder to scale due to its decentralized nature.
Increased regulation is another reason UBS’s analysts believe that crypto is crashing. In fact, they said in their research note that crypto will “face bigger setbacks from authorities in the coming months.”
“Crypto Winter ” is Catching Up with Investors
Crypto winter is a term market participants use to define a sustained period of price crashes in the crypto market. Prices may fail to recover for years to come.
Interest rate hikes from the Federal Reserve this year will likely lower the appeal of bitcoin and other cryptocurrencies in the eyes of investors, some experts say.
“If central banks are moving to get a handle on inflation, then that damages the argument that investors should hold bitcoin as protection against price rises,” stated the UBS analysts.
And added, there is a “dawning realization” among investors that Bitcoin is not actually “better money” given its volatility and limited supply, which makes it inflexible.
Crypto Exchanges such as Coinbase have recently reported a decline in trading volumes, suggesting individual investors are moving away from cryptos as the digital asset slump deepens.
Lately, crypto winter has become a topic of conversation for digital assets followers on social media.
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Another user said crypto winter “is here”, and warned there will be “a bloodbath”.
“We view crypto coins and tokens as highly speculative, and we think that investors should not build strategic exposure to them within their financial portfolios,” advises UBS.
A Crypto Rebound This Year ?
Despite bitcoin’s ebbs and flows, the cryptocurrency could reach $100,000 — according to analysts at Goldman Sachs.
The investment firm said bitcoin currently makes up about 20% of the so-called “store of value” market, a term used to describe gold, bitcoin and other alternative assets like currencies and commodities whose prices — in theory — should not depreciate much over a long period of time.
Goldman Sachs believes bitcoin could eventually make up 50% of the store of value market, which could push bitcoin about 17% to 18% higher annually for the next five years to top the $100,000 level.
