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The past several months have not been pleasant for cryptocurrency investors. They have watched their digital currency holdings lose a significant portion of their value. And they’re not sure if (or when) the mayhem will cease.

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Bitcoin has fallen off its all-time high of $68,000—which it achieved in November 2021 –to its current price of about $20,000. Ethereum is now worth just a quarter of its own high. Most major cryptocurrencies have seen similar declines. A number of coins, such as Terra’s Luna, have totally collapsed, causing investors to lose billions of dollars.

The bearish atmosphere around the world of cryptos is palpable. Many who champion the long-term potential of digital assets remain certain that the present troubles will pass. But not everyone shares their optimism. Across the globe, millions have dumped their cryptos and exited the market.

What Caused The Recent Crash?

Cryptocurrency descended to its present depths just after attaining all-time highs. Bitcoin touched $68,000 on November 10, 2021, to round off a year of significant volatility. Ethereum climbed above $4,850 within the same period. Even supposed meme coins such as Dogecoin and Shiba-Inu soared.

However, a number of factors converged to drive the markets into wintry territory. Global inflation, birthed by the expansionary monetary policies of governments across the world, forced the hands of authorities (especially the United States Federal Reserve) to raise interest rates. That move has triggered sell-offs in both stock and crypto markets, and caused stock and crypto prices to tank.

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Geo-political events, chief of which has been the Russia-Ukraine war, have contributed to fall in the value of digital currencies as well. China’s crackdown on cryptocurrency mines within its borders has made investors jittery about the future of crypto. Many fear that China’s hostility towards cryptocurrencies will spread to other major demand centres, and shrink the global market for virtual coins as a result.

Will Crypto Prices Recover?

It’s not clear how long cryptocurrency prices will remain depressed.

Some analysts opine that it could take anywhere between a few months and a couple of years for digital currencies like Bitcoin and Ethereum to reach their last all-time highs. Others are more bullish about the prospects for a quick recovery; they even suggest that Bitcoin could touch $100,000 in the coming months.

In fact, predicting price trends for cryptocurrencies is not an exact science. It’s safe to say that no one is absolutely certain when things will begin to look up again. There have already been a number of low-level rises in the past several weeks, but they have barely broken into a significant comeback for cryptos.

We can learn a few lessons about this from past crashes. On December 17, 2017, Bitcoin reached $19,783, which was then an all-time high. But on December 22—just a few days later –it fell 45% to below $11,000. This low was sustained all through 2018, one of the longest periods for which Bitcoin has remained in the doldrums.

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In the case cited above, the fall in the price of Bitcoin happened because investors were selling off their stakes to secure profits from an obvious bubble. In other instances, significant falls have come on the back of major hacks, government regulations and bans, and a generally gloomy economic outlook. These sorts of events are often difficult to predict. It’s also not easy to tell when their effect on the markets will wear off.

What Should Investors Do?

The answer to this question depends on a lot of factors: the amount of money invested, the type of digital currency the investor holds (or wants to hold), how long they’re willing to stay invested, and so on.

A majority of analysts seem to believe that there will be a recovery at some point, even though they aren’t sure when it’ll happen. If you’re in it for the long haul, you may consider retaining your holdings until the storm is done.

However, you’ll be safer with the major cryptos, especially Bitcoin and Ethereum. Digital tokens with a much smaller market capitalization (e.g. meme coins) can collapse if they come under sustained pressure. We have already seen this happen with Terra’s Luna (mentioned earlier), for example.

There’s one thing that most analysts agree on: if you want to invest in cryptos, you should only put in money that you’re prepared to lose. They are among the most volatile assets you’ll ever hold. Don’t empty your life savings on them.

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This article was first published on 8th July 2022


Ikenna Nwachukwu holds a bachelor's degree in Economics from the University of Nigeria, Nsukka. He loves to look at the world through multiple lenses- economic, political, religious and philosophical- and to write about what he observes in a witty, yet reflective style.

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