The cryptocurrency markets have seen a roller coaster year in 2022. In just one year, the market valuation of cryptocurrencies has fallen from its $3 trillion peak to almost $800 billion. The majority of the top-performing crypto coins have started to lose money and are already down double digits. There will be a slump as a result of the aggressive selling by cryptocurrency investors who are also holding tight positions.
The largest currency in the world, Bitcoin, rose to an all-time high of $69,000 in November 2021, then peaked at $47,000 in January 2022, and is now trading below $18,000 following the collapse of FTX. Similar to Bitcoin, Ethereum has now dropped to values below $1300 after reaching a record high of almost $4900 in November 2021.
What is driving the downward trend in the crypto space, and why? Let’s explore this topic in depth.
Crypto Market Keeps Declining
The entire market for digital currencies has turned scorching red and doesn’t appear to be slowing down any time soon. Few digital coins and tokens have actually seen their value decline more than others.
The FTX exchange’s native token, FTT, which served as its foundation, has reached its lowest point since the FTX scandal broke. On September 1, 2022, FTT was trading at $26, but it is currently trading at a low of around $1. The worst decrease has also been experienced by other currencies, such as the so-called “Ethereum Killer,” Solana (SOL). On November 6, 2022, Solana was trading at $37, its highest price in the previous three months; it has since dropped to $12 levels.
Since November 2022, the value of other cryptocurrencies such as Filecoin (FIL), Storj (STORJ), Decetraland (MANA), Apecoin (APE), and Flow (FLOW) has fallen by an average of 20–40%.
Bitcoin (BTC) and Ethereum (ETH), the two most valuable currencies by trading volume and market capitalization, have experienced a steep decline as a result of the severe FTX meltdown. ETH, which reached its yearly top around $4,900 levels, is currently trading at $1200 levels as of December 20, 2022, while Bitcoin is practically trading at its lows at $16,000 levels.
Contrarily, Ripple (XRP) and Binance Coin (BNP), which are down nearly 9% and 7% respectively, are not having as much trouble. On December 20, 2022, Tether (USDT), USD coin (USDC), Dai (DAI), and TRON (TRX) are among the biggest gainers.
The Causes of the Crypto Collapse in 2022
2022 has been a turbulent year for cryptocurrency, which is known for its high volatility. The failure of FTX, one of the biggest international cryptocurrency exchanges, is the main cause of the market slump. The collapse of FTX and its dispute with Binance have not only caused a significant market sell-off but have also decreased liquidity in the cryptocurrency market.
The biggest cryptocurrency exchange in the world, Binance, had plans to acquire rival FTX but abandoned those plans after discovering a number of financial and legal problems with the target company. Bitcoin fell to its lowest point in two years as a result of Binance’s move, which reached $69,000 in November 2021, and astounded the cryptocurrency community.
These unexpected developments caused the crypto business to experience upheaval, which in turn caused a high level of skepticism and mistrust among investors against centralized crypto organizations and on the regulation front.
The FTX contagion effect is extremely obvious, and various concerns have been raised about the future of other trading and lending companies like Gemini and Coinbase. Experts hold that their management, governance, and regulation procedures are absolutely necessary for them to survive.
Aside from the FTX’s abrupt decline and its ripple impact, the recent hawkish tone of the U.S. Federal Reserve’s tighter monetary policy has also fueled the fire.
Is it currently safe to invest in cryptocurrency?
Indian cryptocurrency investors have already experienced such high volatility. Whether it be the Terra-Luna crash, the Russia-Ukraine war, the new crypto tax regime, or the current FTX collapse, investors are getting better at handling these circumstances every day and are calling for more stringent operational transparency, governance, and laws.
The sad back-to-back incidents that occurred over the past year have had a significant negative effect on Indian investor sentiment. Investors are currently playing with more caution and paying attention to whether the digital assets they have invested in are sufficiently transparent or whether they have been utilized as collateral.
Following FTX, it is strongly advised to only invest in things that you completely understand and that are controlled. Crypto investors would be wise to use the FTX situation as a wake-up call and invest in the cryptocurrency market only after conducting extensive research, whether purchasing in dips or waiting for the market to correct. Additionally, it is advised to invest only 5–10% of the portfolio to digital coins.
To sum up
Investor trust has been severely damaged as a result of the failure of the enormous worldwide exchange FTX and a general aversion to making new investments in the market due to growing inflation and interest rates.
Given the uncertainties in the world and the impending macroeconomic difficulties, it is better to watch market movements carefully. It would be wise to keep a close eye on the specifics of the cryptocurrency market right now rather than acting hastily or recklessly.
And who knows? Once this turmoil has entirely passed, cryptocurrency investors could be able to locate their preferred digital assets at a much more reasonable price.
