The Future of Crypto: Navigating the Downturn and Taking Action

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Bitcoin Vs. Banks: Here's Where The Price Goes Next (Cryptocurrency:BTC-USD)  | Seeking Alpha

Bitcoin Vs. Banks: Here's Where The Price Goes Next (Cryptocurrency:BTC-USD)  | Seeking Alpha

Since 2020, the cryptocurrency market has faced its most significant bear season, enduring a prolonged slump throughout 2022. Bitcoin, which once reached an all-time high of nearly $69,000 in November 2021, now hovers around $20,000 after some recent gains. Ethereum has also experienced a significant drop from its peak of almost $5,000 to approximately $1,500. Altcoins and NFTs, which are primarily priced in cryptocurrency, have faced similar challenges.

At the start of 2022, the global cryptocurrency market cap stood at $2.2 trillion. However, after twelve months, it has decreased to approximately $1 trillion.

The current bear market has led to renewed questions about whether the entire crypto frenzy is simply a bubble. Nevertheless, it is important to approach the industry’s unique challenges with a critical yet open mind.

To understand the ongoing crypto dip, it is crucial to examine previous market downturns, including the one between 2020 and 2021 following a relatively stable period in 2019. While the COVID-19 pandemic played a role, the sustained uncertainty over the past several months has raised concerns about the crypto economy’s viability amidst global incidents and market variables.

Why the Downturn?

The recent crypto market slump can be attributed to multiple factors. Firstly, high inflation, which the Federal Reserve has struggled to curb despite raising interest rates, has posed a challenge. The interest rate currently stands at 3.9%, with experts predicting it could reach 5% by March 2023. Retail investors who viewed crypto as a hedge against inflation are realizing its similarity to traditional asset classes, such as stocks.

Secondly, the escalation of the Russia-Ukraine conflict introduced a new dimension of geopolitical tension in Europe, destabilizing the market. Furthermore, the conflict has exposed the vulnerability of cryptocurrencies to government regulations.

Bitcoin’s creator, Satoshi Nakamoto, intended to challenge governmental and traditional financial institutions’ monetary control through the creation of bitcoin. However, Russian crypto holders have faced restrictions on crypto transactions since the EU imposed sanctions on the country. This has eroded public faith in crypto and contributed to its devaluation.

In addition to these systemic challenges, incidents like the implosion of the Terra and LUNA ecosystem and the liquidation of Three Arrows Capital (3AC) have directly impacted investor confidence in the crypto market.

Furthermore, the crypto market faces general obstacles that contribute to its high volatility, even as it matures. Cryptocurrencies are inherently speculative assets, designed to experience price swings. However, due to the associated risks, cryptocurrencies also face persistent threats of regulations, often with unclear guidelines and inconsistent enforcement.

Moreover, market prices can be significantly influenced by whales, who hold substantial cryptocurrency holdings. The dumping of BTC by whales throughout the year has affected the broader market and altcoins. In July, one of the wealthiest whales sold a staggering 78,484 BTC, valued at $1.4 billion at the time.

While the crypto market faces challenges, opportunities still exist. Investors and enthusiasts should consider strategies to navigate the downturn and take action accordingly.

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