The Value of Cryptocurrencies Is Falling – Was It a Trap Set Early?

Murad Jandali | 2 years ago




This year, the cryptocurrency market witnessed one of the worst crises that have befallen it; as it has lost more than half its value since November 2021, after investors dumped cryptocurrencies, amid a massive sell-off in risky assets.

The severe crash in the crypto market (the largest market for cryptocurrency trading and includes more than 19,000 currencies) prompted major trading platforms to suspend their services as hundreds of billions of dollars evaporated into thin air, amidst the uproar about the continued low prices.

According to economic analysts, one of the main reasons behind the losses of the crypto market is the release of disastrous US inflation data, and the interest rate hike by the US Federal Reserve, in light of the movements of central banks around the world towards tightening monetary policy.


Severe Setback

Despite a significant recovery in the price of Bitcoin, which reached new highs, exceeding the level of $68,000 in November last year, the world-famous cryptocurrency has fallen by 70% so far and is likely to fall further. The collapse of Bitcoin continued to the level of $19,000, according to the data of TradingView.

The severe decline that Bitcoin experienced during the last period affected the crypto market in general, and reduced its total market value to $889.12 billion, after its value reached $2.3 trillion last year, according to the coinmarketcap platform, which monitors cryptocurrency prices globally.

During April, the crypto market began to witness a significant decline and reached its peak on May 12th after the collapse of TerraUSD, where the total market value fell to about $1.1 trillion.

In early June, the US Federal Reserve announced the tightening of monetary policy and the possibility of raising interest rates higher than market expectations by 50 or 75 basis points at the time, to take cryptocurrencies a new blow that reduced the total value of the market from levels of $1.25 trillion to about $800 billion.

There are 5 main reasons behind the decline in the value of Bitcoin, and indeed the crypto market in general, according to a report published by ZIPMEX, an investment platform, on June 24, 2022; most notably, the loss of confidence in bitcoin as a safe hedge cryptocurrency in light of the steady rise in global inflation rates, and with the collapse of TerraUSD fears of cryptocurrencies multiplied.

The second reason for the collapse of cryptocurrencies during the recent period is that they do not have fixed assets that the investor can refer to in the event of the cryptocurrency collapse, to recover part of his money.

The third reason for the collapse of cryptocurrencies is that they are not subject to any legal control, and therefore there is no way to hold those responsible for the collapse of the value of the cryptocurrency accountable.

According to financial market experts, the fourth reason is the fierce fighting of central banks and financial institutions, like the International Monetary Fund, the European Bank, the World Bank, and others.

The last reason for the collapse of Bitcoin and the crypto market now is the failure of Bitcoin and other currencies like Ethereum, Tether, and Binance Coin to contain inflation, which reached its highest level in 40 years.

In addition, the US Federal Reserve's policy of raising interest rates during last June and this July may increase the attractiveness of the dollar and long-term bonds as the safest haven from cryptocurrencies.

Despite the volatility and sharp fall in the price of the crypto market, The Times revealed in its report on June 29, 2022, that many experts are still saying that Bitcoin is on its way to surpassing $100,000, but they could not predict exactly when that would happen.

A recent study by Deutsche Bank found that about a quarter of bitcoin investors believe bitcoin prices will be over $110,000 in five years.

In turn, Guido Boehler, CEO of Swiss bank Ciba, predicted, during the Crypto Finance conference last January, that the price of Bitcoin would range between $50,000 and $75,000.

As for financial institutions, Goldman Sachs expected at the beginning of this year that the price of Bitcoin would cross the $100,000 barrier over the next five years.

Whereas JPMorgan predicted a long-term rise at $146,000, Bloomberg predicted it could reach $400,000, if the cryptocurrency rose at similar rates last year.

Bloomberg analysts believe that the recent collapse of the crypto market is not the end, as some investors are waiting for a new bottom for cryptocurrencies to make new purchases, in the hope of making big gains when the crypto market returns to rise again, according to their claim.


Big Trick

In an article published by The New York Times on June 06, Paul Krugman wrote that crypto assets are a great scam, pointing out that all crypto assets are worthless, and even saying that blockchain is an integral part of this controversy.

Krugman explained that all stablecoins are worthless and life savings invested in cryptocurrencies can be lost in the hopes of making gains, stressing that it is not wise to invest savings in cryptocurrencies, and suggesting that the investment should not exceed 1% of the investable funds in crypto assets, provided that the crypto portfolio is diversified.

In his article published by the American Institute of Economic Research on June 20, 2022, writer Gerald Dwyer responded to Krugman's article and said: “What is happening in the crypto market reminds him of the housing bubble and the mortgage crisis.”

The writer states that Krugman's comparison between The Great Deficit film and the 2007-2008 financial crisis indicates other important points.

“Some government officials have suggested that crypto assets may pose systemic risks to the economy, which can create problems similar to the financial crisis,” he said.

“Furthermore, cryptocurrencies - like Bitcoin - use large amounts of electricity, which contributes to the high price of electricity and plays a role in the climate change crisis,” Dwyer added.

Others, according to the writer, suggest banning crypto assets to ward off all its negative repercussions on the markets, like China, which banned its citizens from mining or owning crypto assets, and the United States can do the same.

“Krugman suggested that all stablecoins are worthless, ignoring the role of the US dollar cryptocurrency, which is used for international transactions, and Tether, which is used to settle many transactions on cryptocurrency exchanges,” the writer notes.

On June 03, 2022, The Washington Post published a report by Steven Zeitchik, in which he said that a growing group of technical experts is issuing strong warnings about the risks of investing in cryptocurrencies.

“These experts recently issued warnings to governments and citizens alike about investing in cryptocurrencies, and they also warned that the lava is inevitably coming and will be large,” Zeitchik added.

“Back in 2021, when cryptocurrencies appeared to be on the rise in a stable direction, a new study by Pew Research concluded that 16% of Americans use or invest in cryptocurrencies,” he noted.

“The collapse of some cryptocurrencies, like TerraUSD and Bitcoin, was an impetus for experts to continue to polish their message, and the climate now seems more conducive to those warnings than ever before,” Zeitchik considered.

On December 22, 2021, CNBC published a report in which it talked about the expectations of financial experts that the value of Bitcoin will decline and collapse during 2022, noting that experts warn of a repeat of what happened in 2018 when the popular cryptocurrency fell to nearly $3,000.

Bitcoin had risen to a record high of about $69,000 in November 2021, but it is currently at $19,000.

Carol Alexander, a professor of finance at the University of Sussex, said she expects bitcoin to fall to $10,000 in 2022, wiping out nearly all of its gains in the past 18 months.

“If I were an investor now, I would consider exiting bitcoin soon, because its price is likely to collapse next year,” Carrol added.

The financial expert based her call on the idea that Bitcoin has no intrinsic value, but is rather a puppet rather than an investment.