For weeks now, we’ve all witnessed how frightening the ‘cryptocurrency bloodbath’ which translates toCryptocurrency markets bloodbathIt dashed hopes that the price of Bitcoin and other cryptocurrencies will rise again soon.
This weekend alone, Bitcoin (BTC) and Ethereum (ETH) lost about 10% of their value as BTC’s decline deepened on Saturday, trading below $20,000 to reach $18,067.15, retreating to lower levels. From its peak in 2017.
For its part, ETH, the second most important cryptocurrency by market capitalization, also fell sharply, below $1,000, which has not happened for some time, reaching $943.12 per ETH, according to the CoinMarketCap portal.
But this is only the tip of the iceberg, as this trend was also observed in the rest of the crypto activity which all graphs marked in red. Thus, according to many analysts, this crypto winter will be difficult and painful enough, and only the fittest will survive.
The consequences of the crypto winter are oversold, which destroyed the market value in a short time. Just compare the market cap at the end of 2021, which was above $3.2 trillion, to barely the $875 billion reached on Sunday.
It should be noted that at this time, the economic situation at the general level in all countries is difficult and affects the financial resources of all equally. For now, the overall outlook for the short to medium term, both traditional and crypto markets, is clearly bearish.
This feeling arose as a result of several events at the international level, but it is mainly due to the rise in interest rates in all countries to combat the rising inflation that led to the rise in prices of goods and services, as a result of several circumstantial factors thereafter. epidemic.
Although the latest decision by the US Federal Reserve (Fed) to increase benchmark interest rates in one session by 75 basis points (0.75%), the “largest increase since 1994”, the biggest impact event this fall has.
A drastic decision had to be taken to contain the high rate of inflation in that country, the highest in the past 41 years, and in the face of the possibility of a severe economic recession, in just one year. Parliamentary elections mid-term.
This Fed decision, which was partially repeated by other central banks, hit the market, motivated by the fact that most investors who are still buying with leverage, are beginning to perceive the increase in borrowing money to get bitcoin at bargain prices.
However, there is no doubt that the biggest blow to the cryptocurrency market was the fall of the Terra ecosystem and its algorithmic stablecoin (TerraUST) which lost parity with the US dollar, after Luna (LUNA), the cryptocurrency that served as collateral, lost 100% of its value.
Although the bear market has existed since the first months of this year, it was the fall of Terra that undoubtedly caused the most damage, as it generated losses amounting to 300 thousand million dollars, according to conservative estimates.
However, the consequences of this decision by the Federal Reserve are not yet visible in the coming days, as some analysts estimate that the price of Bitcoin will continue to decline. Such is the case of Peter Schiff, a North American economist who predicted that the future value of Bitcoin would fall further.
“If Bitcoin could collapse 70% from $69,000 to below $21,000, another 70% could crash to $6,000. Given the excessive leverage of the cryptocurrency, imagine the forced selloff that would occur during a selloff of this size. 3000 dollars is the most likely target price.”
And this is event after event, FUD and FOMO for the market gradually increased, moving from “mass purchases” to “massive sales” within days, fueled by the recent actions of Celsius and Babel Financial, by limiting the withdrawal of funds from its users.
And now things seem to be getting worse, with the Fed focusing on stablecoins like Tether (USDT), as can be seen at one point in The Monetary Policy Report was presented to Congress last weekwhere he expressed his concerns about this type of digital asset.
President Powell delivers opening remarks at the inaugural conference on the international roles of the US dollar: https://t.co/k5kn3tnTzn https://t.co/EY89kTts11
Federal Reserve June 17, 2022
“Stablecoins that are not backed by insufficiently secure and liquid assets and that are not subject to adequate regulatory standards create risks for investors and potentially the financial system, including exposure to destabilizing operations.”
who added that “These weaknesses can be exacerbated by the lack of transparency regarding the risks and liquidity of the assets that support the stablecoins.The opinion that has been reinforced recently Financial stability report submitted in May by the Federal Reserve.
In the said report, the Board of Governors of that body considers it possible”The collapse of the value of some stablecoins“, Based on “recent tensionson the market withstructural weaknesses‘, which called for rapid regulation.
In addition, the aforementioned report adds that one possible solution to the use of stablecoins is the launch of the digital dollar and various central bank digital currencies or (CBDC) that are being created around the world.
What no one is commenting on is that this will be a regulation whose consequences for the crypto market cannot yet be estimated with certainty and that in the midst of a bearish scenario like the current one, it could represent a new drop in the value of Bitcoin and the rest of the cryptocurrency.
So far, analysts estimate that everything could improve by the end of the fourth quarter (Q4) of 2022, but it is better not to have high expectations. Most recommend just waiting for the crypto winter to end, around 2024 when the halving strikes again.
court notice “Investing in crypto assets is unregulated, may not be suitable for retail investors and may lose the entire invested amount”