Without mincing words, 2022 has been a mix year for the cryptocurrency industry. According to findings, the industry within the first half of 2022 has been greeted with the creation of numerous crypto projects as well as crashes of many others. For instance, till today, cryptocurrencies are ravaged by devastating impacts, a development that has continued to put the industry into turmoil. This situation, as, defined is christened “Crypto winter”. As required, this article explains why cryptocurrencies are crashing and the implications for the industry.
An overview of crypto crash/winter
First, crypto crash, otherwise known as bear market or crypto winter usually emanate from a continual decline in the market cap and value of digital assets. Similarly, a crash in the industry usually depicts a market situation occasioned by a heavy fall in prices of cryptocurrencies.
Additionally, the crypto winter also manifests as a market condition where stocks on average fall by at least 20% off their zenith. This means for crypto winter or market downturns to manifest, there must be at least 20% decline in value of securities. In simple terms, crypto winter remains a situation where investors are more risk-averse than risk-seeking.
Why is crypto crashing?
Now, so many questions are calling for answers as regards “why cryptocurrencies are crashing.” Indeed, our findings reveal several factors contributing to the prevalent situation. As revealed, the incessant exploitation of crypto projects by hackers remains one of the significant factors contributing to the overall situation. A detailed 2022 report by Chainanlysis indicated a significant rise in the occurrences of exploitations within the industry. As revealed, a total of $1.3 billion was pilfered from projects within the first half of 2022. This sardonic development hugely impacted all the victimized crypto protocols, with many of them now unable to fulfill their financial obligations.
The collapse of stablecoin also remains another significant factor fermenting current market condition. Prior to the collapse, stablecoins enjoyed an increase in investments. The growth, as reported emanated from the decision by investors to leave the unstable crypto sphere for stablecoin, a more stable sphere. According to findings, the UST became vulnerable to an algorithmic stablecoin, resulting in the loss of over 40 billion USD.
The devastating development, as reported generated a lot of controversies for the stablecoin. The report further that investors to date still see all algorithmic stablecoins as similar and capable of risking investments. This unfortunate situation plunged the industry into a state of disarray. Many potential investors became discouraged to invest in the industry. Secondly, the development reinforced the ardent need for a consistent industry regulation.
Global economic downturn
Additionally, the current downturn in the global economy remains another factor causing the crypto crash. This economic downturn, as discovered, has not spared any spheres, including crypto. Regrettably, the ongoing war in Ukraine and other revealing factors poses a tremendous implication on the global economy. This unfortunate situation resulted in a historic decline of virtual assets, including Bitcoin, known as the largest crypto in the industry. According to findings, the crypto reportedly declined to its lowest low when it fell below $20,000 a few weeks ago. Although, the asset now record a gradual recovery.
Prevailing implications of the crash
Having analyzed why cryptocurrencies are crashing, it is important to underscore the effect of the crash on the industry. Without any ado, the crash plunged the industry into a highly terrible situation. As of today, many firms within the industry, including Coinbase, Gemini, Bybit, and others already sacked many of their employees. Similarly, some other firms like Celsius, Voyager, 3AC, and others now face liquidity crises owing to the prevailing market conditions.
Till today, many of these firms languishing in debt still surfing every available alternatives of settlements. Undoubtedly, the crypto crash poses terrible implications on crypto businesses. However, just as expected, the industry will overcome its debacles in a matter of time. With many calls for a full regulation of cryptocurrencies, experts believe the industry will bounce back soonest. However, actors in the sector must continue to respond and manage the prevailing to avoid escalation. Without any doubt, the manner through which they do tends to determine the future of crypto.