Stand: 21-06-2022 13:44 hrs
The rapid decline in the value of cryptocurrencies is ringing alarm bells for many. There is talk of a crash. What are the triggers – what are the consequences? And is the crypto market threatened with a longer downward spiral?
It should have been a big performance for American rapper Jay-Z and Twitter founder Jack Dorsey. They actually wanted to provide free Bitcoin courses to poorer people in Brooklyn, New York, to educate and impart knowledge on the subject. But after this weekend, the interest should not be too great: the largest and oldest cryptocurrency, Bitcoin, fell by a whopping 14 percent to below $18,000 – the lowest level since the end of 2020.
Bonds more interesting again with the turnaround in interest rates
Concerns about the financial markets as a whole played an important role in this development, says Sören Hettler, an analyst at DZ-Bank. “There are several construction sites that converge here,” he says. “On the one hand, the significantly more restrictive central banks, who have made it clear that they will take action against the high inflation rates – with determination and higher policy rates. This is a point that is bothering the crypto market.”
Private investors and big investors are getting their money’s worth from cryptocurrencies as central banks’ actions are making lower-risk investments – such as bonds – more interesting again.
Loss of confidence due to homegrown problems
But also the downward spiral of Bitcoin, Ethereum & Co. is homemade. For example, there is Celsius Network, a kind of bank that also lends cryptocurrency and promises very high returns. Concerned about financial problems, Celsius had to stop payments last week. Since then it is no longer possible to transfer, exchange or pay currency. A bitter loss of confidence.
People are steering through big challenges, Celsius boss Alex Mashinsky said in a short video. They now want to “stabilize liquidity”. The community is hardly reassured on the social networks. Even the head of the US Securities and Exchange Commission is calling on investors to be more sceptical.
For Volker Brühl of the Center for Financial Studies at the University of Frankfurt, the Celsius case shows that the problem lies in the “lack of regulation and supervision”. Because transparency and investor protection “did not work or only partially worked on such platforms, and investors are now also noticing that”.
Massive value losses since the beginning of the year
Bitcoin has lost more than 60 percent of its value since the beginning of the year alone. Ethereum, the second largest cryptocurrency, even lost more than 70 percent in value. The recent crash of the Terra USD crypto project also caused turbulence – a currency that should actually better protect against risk. In practice, that didn’t work.
There are always big swings up and down in the crypto world. Expert Brühl currently does not rule out a longer downward spiral for Bitcoin & Co. “This trend can really only be broken if many investors believe that the currencies have now reached a certain bottom, that they are fundamentally undervalued and so on, so that there will be more buying interest,” says Brühl.
Consequences for investors, hedge funds and El Salvador
The high losses are already having painful consequences – not only for private investors. A hedge fund in Singapore is considering an emergency sale of company shares.
However, the crash in cryptocurrencies is much more dangerous for El Salvador. Months ago, the poor Central American country made Bitcoin its national currency alongside the dollar and invested heavily. Now that can be a big problem.
Crash on the crypto market?
Constantin Röse, HR, 6/21/2022 12:14 p.m