Last week, Quidax and Lazerpay, two leading cryptocurrency platforms in Nigeria laid off over 50% of their workforce. It is not unconnected to the rising decline of cryptocurrency despite denials. Although crypto crashes are not new, the recent bear market has caused great reasons for traders and investors to worry. In fact, experts have warned that bitcoin might go below $10k, from its current market value which is $16k.
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Leading traders like Binance CEO, Changpeng Zhao, warned in a tweet about the impending winter that would hit the crypto market. Although, he claimed that the market would self-correct cryptocurrency has come to stay and fluctuations are not new. Nevertheless, many onlookers and traders are asking why crypto is crashing. This article provides four reasons behind the crash.
Although there are various factors that have led to the fall of cryptocurrency, the collapse of FTX, one of the major crypto exchange platforms, is responsible for the recent decline in bitcoin. The recent dispute between FTX and Binance led to a major impact that affected the confidence of the entire cryptosystem. With the FTX crash, major cryptocurrencies like BTC and Binance suffered as well as the entire market which fell by more than 70% after November 6.
Increasing interest rates
The second cause of the cryptocurrency collapse is the rising interest rate in the United States and Europe and other major economies. These rising rates are not unconnected with the recent pandemic. Following the record-high inflation, which led to price hikes, BTC was forced to go red as well as other currencies. Due to the pandemic, the US Federal Reserve increased the interest rates in order to bring down inflation by reducing the money in circulation. Hence, the impact of the policy affected the continuous drop in BTC prices because the high-interest rates dictate the market performance, of which crypto is a part.
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The delisting of Luna from the TerraUSD stablecoin from the US dollar accounted for the plunge in BTC. When Luna was delisted as a stablecoin from the US dollar, it became almost valueless, leading to market shocks. The delisting which happened in mid-2022 saw Luna fall by 95% in a day, causing many cryptocurrencies to suffer a decline even till this moment.
Speculation and manipulation
Experts and leading traders have also attributed the recent bearish run in the crypto market to manipulation and speculations by whales (big investors). It is always common to see investors sell their assets whenever there is a drop in the market so as to avoid further losses. This situation has led to speculations, which has led to either panic selling or withdrawal. Also, in a bid to sell off their holdings, whales manipulate the market so that they can create a situation where panic buying can occur. With speculation following manipulation, the market is triggered leading to FUD (fear, uncertainty, and doubt), which caused the recent drop in the market.
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Although BTC is crashing, experts have stated that cryptocurrency has come to stay just like the dotcom industry. The present crypto crash reminds us of the late 90s and early 2000s dotcom crash and despite the crash, dotcom is still thriving. Also, experts have noted that the market would stabilize and those who have their Bitcoin would need to hold on to it and others would need to start buying again because it is cheap. The endpoint is to keep the market running. Leading traders like Elon Musk are optimistic that the pump will always happen.
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This article was first published on 3rd December 2022