Crypto Market Crash: The Hidden Truth And What Is Coming
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August, 22 2023
If you got into panic mode to any degree in the past week due to the crypto market crash, you were not alone. The month of May of 2022 saw the crypto market crashing down heavily, and many things happened that changed what people believed in the past.
The bitcoin price went down to more than half of its all-time high, recorded in November 2021. Apart from this, the crypto market saw more than 600 billion dollars being liquidated within a week.
Some cryptocurrencies weren't affected like the rest, while some suffered the most, such as the Terra USD, which traded lower than $1 from a price of $50. Most crypto enthusiasts believe that stable coins are supposed to be stable in the bear and bull markets. The crash of UST (Terra USD) and LUNA changed this belief system.
Here are the key takeaways of what happened in the crypto market crash and things that investors should know.
Stablecoins Are Not Always Stable
Stablecoins are cryptocurrencies backed by gold, other cryptocurrencies, or fiat currencies like the US dollar. Stablecoins are meant to be stable amidst market volatility, but this almost became a myth after Terra USD was severely affected by the crypto market crash. TerraUSD is one of the native currencies of the Terra network, and before the crypto market came crashing down, it was supposed to maintain its peg with the US dollar.
The creator of Terra, Luna Foundation Guard, bought the idea of adding Bitcoin to its reserve to make sure that the price of Terra is always stable. However, this idea didn't work as planned, and this was revealed with the effect of the crypto crash 2022 on UST. TerraUSD (UST) lost its peg on the US dollar, trading at about $0.6841.
The Best Hedge Against Inflation May Not Be Bitcoin
With Terra's recent crash, bitcoin may not be the best hedge to protect another cryptocurrency from inflation. There was this belief that inflation rarely affects the pioneer cryptocurrency, Bitcoin, but this is not true in all cases. From what was witnessed in the crypto market, one could see that when there is a tighter monetary policy and very high inflation, even bitcoin can be affected.
Over the week, Terra USD (UST) and LUNA were the biggest losers in the market. As investors saw the stablecoin bleeding badly, panic set in, and many rushed to withdraw their money, causing a death spiral. Major crypto exchanges ultimately delisted both Luna and UST to protect consumers.
Indeed, it was a bloodbath as many individuals reported losing their life savings in LUNA investment and staking ventures. A bad experience for the entire crypto market.
Altcoins Were Not Left Out
Data shows that the crypto crash of 2022 did not only affect stable coins and bitcoin, but altcoins were also affected heavily. The global crypto market capitalization went down by a negative 9.83 %, according to market data. ethereum, the second-largest cryptocurrency, was heavily influenced according to the market cap. Ethereum was trading at less than $2,100 at some point, far from its all-time high.
Even other prominent altcoins such as solana also took the hit and went down in price and traded at less than $100 at some point. In the early hours of May 16, 2022, some coins were trading in the green, which showed signs of redemption for the crypto market.
The NFT Market Was Also Affected
The NFT industry depends on blockchain technology to record transactions. Since the crypto market came crashing down, the NFT space has also been affected. According to Non-fungible's tracker, the NFT market was down to about 92 per cent compared to 2021 September, when a lot of sales occurred. Lesser sales were made between May 8th to May 11th, with only about 28,000 sales and transfers recorded.
Why Is Crypto Crashing
2021 was the year that most cryptocurrencies experienced their all-time high, and that year has been used as a yardstick to compare how the 2022 crypto market has been performing. Since the crypto crash of 2022, this is the first time since July 2021 that the pioneer cryptocurrency, bitcoin, went down to more than 50 per cent of its all-time high.
There are many reasons why the crypto market is crashing down; however, we will highlight some on the macro.
According to Fortune, one of them is the rising inflation experienced worldwide, interest rate hikes, and geopolitical instability such as the Russia-Ukraine war that has been raging since early this year. A possible factor could also be the post-pandemic effect on the global economy.
As we know, 2022 has been a rough year for cryptocurrency investors, and May has been one of the worst months this year. The occurrences in May 2022 made some crypto investors lose their beliefs in the crypto market and their resources.
The belief that stablecoins were immovable was questioned after the TerraUSD came crashing down. Altcoins were also affected, and even the NFT market that depends on blockchain technology was also affected severely.
As some of the cryptocurrencies are already recovering, we hope that crypto investors and founders can learn big lessons from this bear market.
What could follow this crash is unknown, and analysts are looking for solutions and making efforts to ensure global economic stability.