Analysts agree that virtual currencies will recover from the massive drop, although they stress that this will be seen in the “long term”.
The crypto market is going through one of its worst falls since its birth. In this context, the most affected cryptocurrency was Terra (LUNA) with a 99% collapse, followed by Doge, which plunged 90%.
The most popular cryptoassets also joined the crisis and reported negative percentages of up to 59% for Ethereum (ETH), and 60% for Bitcoin (BTC).
The massive drop in the value of so many cryptocurrencies set off alarm bells for several investors. One of them went so far as to consider suicide as the “only way out” on Reddit: “I lost over u$450,000, I can’t pay the bank. I will lose my house soon and become homeless.
In order to understand the reasons and consequences of this situation, some experts have offered their opinion.
Why are cryptocurrencies falling?
Herminio Fernández, CEO of EurocoinPay, listed three direct causes: “The pressure from regulators who want to equate them [cryptocurrencies] with traditional systems, Coinbase’s balance sheet with a first quarter loss of u$s400 million and Terra’s fall, which dragged its stablecoin UST to lose more than 50% and its native currency Luna with a loss of 98% of its value”.
For his part, StadioPlus CEO and co-founder Jon Fatelevich believes that what happened is not very different from what has gone before. The expert compares the situation with cryptocurrencies to the dotcom bubble of 2000, when, after a boom in the value of Internet-related companies, many ended up going bust.
“In this case, the first to suffer has been the Terra cryptocurrency, which was among the 10 most important in the world in terms of capitalisation. This can cause global distrust and drag down other cryptocurrencies and is usually reflected in a drop in price,” Fatelevich said.
However, the CEO of StadioPlus points out that this “is not intrinsic to cryptocurrencies” and that it also happens in the stock market, in the real estate market, with the debt of countries, etc.
Which ones are most affected and why?
According to the director of the law firm “Abogado Amigo”, Jesús P. López Pelaz, the most affected are those that “have the least capital”: “In general, they are always weaker assets in the face of sales movements due to fear“.
On the contrary, “the more capitalised ones, despite accumulating very significant losses, have not lost their value”.
Specifically, the most damaged were “the combination of Luna and Terra“, detailed SeaCoast CEO and co-founder José Manuel Arnaiz, who defines them as “a pair of cryptos designed to try to synthetically maintain Terra’s value at u$s1 without a dollar-linked financial asset support”.
Are there “strong” cryptocurrencies that have been left out of this downturn?
All experts recognise that no cryptocurrency was spared from the heavy blow of the last few days.
However, “some have performed better”, Fatelevich said.
“If we look at the Top 100 coins by market capitalisation, we can see that they are all in the red in price change over the last 7 days, most of them even with double-digit losses,” said Woonkly CFO Jonathan Alvarez.
“The most powerful ones, Bitcoin and Ethereum, have fallen less than others. But they have lost in just 24 hours around 20% of the value they had, and 60% from the peak they reached at the end of 2021″, commented Dositeo Amoedo, president of the Association of Financial Educators and Planners.
Will they bounce back or will the fall be a long one?
EurocoinPay’s Fernandez said it is difficult to know the consequences of the fall, but if you look at past cases, the market is likely to rebound.
However, like many of those interviewed, he believes that this may take some time and that we will not see it in the short term.
In fact, some experts, such as Jeffrey Halley of OANDA, believe that Bitcoin could fall as low as $17,000 per unit.
Amoedo warned that, if Halley’s prediction comes true, it would be “a nightmare for almost all investors”.
The experts were optimistic and analysed previous falls. In that sense, they agreed that it is normal for them to rise again.
However, in the hypothetical case that they do not go up, Amoedo argued that “more people will try to sell them [cryptocurrencies] to recover what they can of the ‘real’ money they invested and they will continue to lose value, as it is governed by the law of supply and demand”.
How might this affect the Metaverse?
Fatelevich predicted that “the Metaverse will continue to develop”: “Metaverses are not only in the crypto world, there are big companies investing in it, such as Meta, Sony, Disney, etc.”.
López Pelaz, for his part, considered that, as with all technological developments, “it will be slowed down by the current economic situation”.
The CEO of EurocoinPay redoubled his commitment to the blockchain world regardless of the fall.
“They have a great future,” he emphasised. However, as SeaCoast’s Arraiz points out, “the Metaverse is a concept that is still in its infancy”.
How can this affect Tesla and Terra?
“Tesla has a significant portion of its assets in cryptocurrencies and therefore has exposure to this market fluctuation. However, it is neither dependent on these assets to continue its business nor is its business based on the profitability of these assets. It is easy to foresee that they will hold their positions without a fuss and wait for better times to recover that value,” said Pelaz.
The case of Terra is very different, having lost almost 98% of its value in November 2021. Fernández pointed out that the CEO of the company behind it, Do Kwon, is working “to return liquidity to its two currencies and recover”.
Some countries are more likely to be affected than others.
El Salvador has part of its state funds in cryptocurrencies, so Pelaz reports that “with its collapse it has lost much of the backing value for its policies”. The EurocoinPay CEO emphasised that the country had bought “about 2000 Bitcoin and in this fall it bought back 400 more Bitcoins”.
Pelaz also highlights the situation with the war between Ukraine and Russia and explains that Ukrainians received a large part of their donations through Bitcoin and Ethereum, and this drop affects them.
Is it possible to speak of a “Crypto Crash”?
Amodeo opina que sí: «En solo 24 horas las criptomonedas han bajado considerablemente en comparación con los máximos del año pasado». Aunque «puede que dentro de unos meses se sitúe en u$s80.000 por unidad y que en un año esté en menos de u$s15.000 por unidad».
For his part, Fernández estimated that “we cannot speak of a Crash”: “Cryptocurrencies are based on the underlying technology of blockchain and this will change the entire industrial and financial process in a few years in a more transparent and decentralised way, returning something that society is now at risk of, which is its freedom and privacy”.
“People who have held short positions have achieved high returns during the price decline, but investors who take advantage of this to acquire a larger amount of currencies for their portfolio for a lower price also benefit,” said Woonkly’s Alvarez.
Could Bitcoin’s massive fall drag all the others into crisis?
“All currencies have parity with Bitcoin: if Bitcoin goes down, they all go down. This will no longer be the case in the future,” replied the CEO of EurocoinPay.
Amodeo believes it is the other way around: “On Wednesday, while all cryptocurrencies were falling sharply, Bitcoin and Ethereum held their own, with the former even gaining some value. But Coinbase’s results, and Terra’s collapse later, dragged them down as well.
“With the fall of Terra, more than $30 billion in capitalisation has been lost,” Fatelevich estimated, “This means that there are people who must have lost that money.” In total, there are an estimated 200 million people in the world with cryptocurrencies and experts say the estimated losses are not just a few individuals, but many.
“It is worth remembering that cryptocurrencies have been a gift to the world that has lifted millions of people out of poverty,” concluded Fernández, the CEO of EurocoinPay, according to 20minutos.es.
Source: iproup.com
Disclaimer: The information set out herein should not be taken as financial advice or investment recommendations. All investments and trading involve risk and it is the responsibility of each individual to do their due diligence before making any investment decision.
