Why has crypto crashed?

10.08.22

At Geeks, we’re interested in all things tech, from gaming to crypto and blockchain.

In the news recently, there has been a large focus on the crypto crash, which got our heads turning! Crypto has gained interest in the last few years, with the value of particularly popular cryptocurrencies, such as Bitcoin, soaring.

What is Crypto

Crypto, also known as cryptocurrency, is a digital currency which can be exchanged through a computer network, Bitcoin for example can be exchanged for other currencies, products, and services. It doesn’t have a physical form (like bank notes), despite the name cryptocurrency, it’s not yet considered to be a currency in the traditional sense, and it doesn’t have a central authority, like a bank or government to maintain it.

As of March 2022, there’s believed to be more than 9,000 cryptocurrencies with more than 70 of these having a market capitalisation exceeding £1billion.

The largest cryptocurrency is Bitcoin, with 1 Bitcoin costing more than £45,000 in November 2021.

Why has crypto currency been in the news recently?

May 2022 saw two low-profile crypto currencies collapse, this made people less confident in the crypto market and caused people to start selling. However, the more people sell, the less it becomes worth, which can start the downward spiral as more people begin selling to mitigate their losses.

And now crypto is crashing, Bitcoin alone has reduced in value by 51% since January; cryptocurrencies were worth £2 trillion at the start of 2022, but this has now halved.

The BBC state that the experts believe this is due to ‘the wider global climate’ with people being less free with their money due to having ‘less to invest.’ And with crypto being notoriously unpredictable, those looking to invest may see crypto as a too greater risk in these times; crypto is also unregulated and unprotected by financial authorities, so if your crypto loses value or you lose access, you lose your money.

FT markets editor, Katie Martin, spoke to the BBC and pointed out that Bitcoin has no intrinsic value, unlike more traditional assets which may have a revenue stream for example, the price is purely what people are prepared to buy it for, so if enough people are trying to sell, the value can plummet.

Where does crypto go from here?

Although there are predictions, nobody really knows where crypto will go from here, crypto is infamous for going up and down like a yoyo, November 2021 saw an all-time high for Bitcoin, while it’s now at the lowest since December 2020, as of 4pm 29th June 2022, 1 Bitcoin is worth £16,498.

Many say to buy the dip while its cheap and wait in hopes that it will rise, in fact that’s what needed to stop the crash –people who have crypto would need to hold on to it and others need to start buying it again to stabilise the value. However this can be risky as Forbes highlighted, the dip could become a long-term trend and while prices could begin to rise again, there’s the chance they could also fall even further.