The world of cryptocurrencies is facing a hard time right now. Bitcoin, the biggest cryptocurrency in the market has its price dropped by nearly 17%. The coin that Satoshi Nakamoto created was valued at $21.406,21 per coin as of last Tuesday, being the lowest point that the price has dropped since December 2020. At the same time, Ethereum, the second-biggest cryptocurrency after bitcoin, suffered a similar price drop of 16,74%. Which begs the question of why such things are happening.
Global Economic Uncertainty
The crypto market isn’t the only market affected by the current economic state of the world, in fact, almost all financial and economic aspects of the world have been experiencing a decline. The reason that this is happening, however, is not an easy one to tackle.
But to remain close to the topic of this article, we can say that the plummet in cryptocurrency values is due to the fact that investors are being scared away from investing their money in anything.
The state of global macroeconomics has been uncertain at best and depressing at worst. The constant threat of world war, food and energy shortages, and the economic impacts of these factors create a sort of negative feedback loop, where with each passing day these issues take a turn for the worse. Recently, the release of the United States’ inflation data has only worsened investors’ belief that global macroeconomic risks have only gone up.
The Crypto Market’s First Recession
Cryptocurrencies, or more specifically bitcoin, were created back in 2008 as a response to the 2008 financial crisis. And as such, it has not been through any major economic turmoil. That is until now when the economic and political state of the world creates an atmosphere of uncertainty and pessimism for all investors.
With the world inching ever closer to a recession, this may very well be the cryptocurrency market’s first economic recession. Moreover, with no historical data to refer to, investors have no real way of knowing how the market will react, which only heightens the risk factor involved in cryptocurrency investment.
Conclusion
The drops in cryptocurrency prices have been devastating, to say the least. Bitcoin is now worth 68% less than what it was worth back in November 2021. And other cryptocurrencies have followed suit. The cause of this phenomenon is a mixture of global political turmoil and its macroeconomic implications for various commodities, alongside the growth in negative investor sentiments toward the crypto market in general.
The future of crypto remains to be seen, as it will (but hopefully not) soon face its first recession. The question of crypto’s legitimacy as a financial instrument is still up in the air now.
But the important thing is to not lose all your money trying to figure it out.