The Bitcoin crash has resulted in a loss of $2 trillion dollars. Here’s what’s going on with the massive dive.

The Bitcoin crash has resulted in a loss of $2 trillion dollars

Even in a market known for its volatility, cryptocurrencies represented by Bitcoin have been on a wild, downhill ride in recent months, with individual digital tokens hitting two-year lows and the overall industry losing roughly $2 trillion in value since late last year.

Some proponents of the industry argue that the downturn is a natural part of the process, pointing to comparable upheavals in the early days of the internet, which eventually settled into a more stable path.

But what is causing the recent drop in bitcoin valuations, and what does it tell us about the future of digital currency, if anything?
The economy as a whole is in bad shape: When it comes to tough times, the cryptocurrency market isn’t alone in seeing precipitous drops from a previous period of sunshine, when consumers were rich with cash, interest rates were low, and the world was finally emerging from the COVID-19 pandemic’s constraints.

That’s all in the past however, as U.S. inflation remains at 40-year highs and the Federal Reserve attempts to keep consumer prices from exploding by raising its benchmark interest rate, which it did again on Wednesday, this time by a whopping.75 percent, the largest increase since 1994.

During the pandemic, a large amount of money flowed into crypto assets, but when the domestic and global economy began to deteriorate, jittery crypto owners pulled out in masse, taking a large chunk of market value with them.

When a hedge isn’t a hedge any longer: Cryptocurrencies, which were once hailed as a safe haven from inflation and the volatile swings of the stock market, have instead shown to be more akin to speculative stock trading than anything else.

According to Wired, Jamie Burke, the CEO of crypto venture fund Outlier Ventures, believes that cryptocurrency has been behaving exactly like a stock, and that the two are advancing in lockstep since the distinctions between them have blurred. As institutional and individual investors spend their stimulus money on stock trading site Robinhood, the vertiginous price highs and frenzied excitement around crypto have pulled in a lot of new money.

Burke told Wired that “digital assets began to be tied to the broader macro environment.” “A significant amount of money has entered the financial system.” They began to speculate as a result of this, and crypto gained greatly as a result. However, when the macroeconomic situation changes, you’ll see a negative impact on digital assets.”

Ships riding an ebbing tide: Companies who embraced strategies that relied significantly on ongoing upticks in value are revealing their fractures as cryptocurrency values have collapsed.

According to NPR, Celsius, which accepts bitcoin deposits from individuals and lends them out, has halted withdrawals due to financial difficulties. Binance, a cryptocurrency exchange, temporarily blocked Bitcoin withdrawals on Monday.

According to NPR, the troubles at Celsius are eroding confidence in the broader cryptocurrency market, only weeks after the collapse of a stablecoin dubbed TerraUSD, and crypto firms are reacting by rethinking their future plans.

San Francisco-based Coinbase, one of the busiest U.S. crypto exchanges, created a big sensation when it went public in April 2021, gaining a valuation of around $100 billion. Its stock has been on a downward spiral since November, with a market capitalization of around $11.4 billion at the close of normal trading on Friday.

Now, the company, which facilitates transactions for customers wishing to purchase, trade, transfer, or hold over 100 different cryptocurrencies, is slashing its employees and preparing for what may be a long period of stagnation for digital tokens, according to company leadership.

According to CNBC, Coinbase CEO Brian Armstrong mentioned a probable recession and the need to manage Coinbase’s burn rate and boost efficiency. During a bull market, he added, the company grew “too quickly.”

“After a ten-year economic boom, we appear to be entering a recession.” “A recession might trigger another crypto winter, which could endure for a long time,” Armstrong wrote to CNBC in an email.

He also mentioned that previous crypto winters have seen a considerable drop in trading activity.

“While it’s difficult to foresee the economy or markets, we always plan for the worse so that we can run the business in any situation,” Armstrong added.

Not everything is bad: According to Marketwatch, billionaire tech entrepreneur Mark Cuban is a fan of, and investor in, cryptocurrencies and their underlying blockchain technology. He believes the value crash is part of the natural evolution of the digital currency business, and compares what’s happening now to the early 2000s decline in tech and internet companies.

The value trough, according to Cuban, will have a purifying effect on the whole crypto sector, filtering out companies that failed to develop strategies based on sound business principles.
In addition, Cuban believes that during these volatile times, new chances for crypto entrepreneurs may emerge.

“Whether it’s stocks, crypto, or any other business, disruptive applications and technologies deployed during a bear market will always find a market and flourish,” Cuban told Fortune.

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