Why is Crypto Crashing and Is There a Chance for Recovery?
There’s no sugarcoating it—2022 was a terrible year for the cryptocurrency market. The prices of virtually all major crypto assets cratered, with Bitcoin dropping 65%, Ethereum losing 68%, and many altcoins seeing even bigger drops. On top of that, the cryptocurrency and blockchain sector is dealing with a major loss of confidence thanks to the many scandals that rocked the crypto industry in 2022. To get more news about titanftx, you can visit wikifx.com official website.
In this article, we’ll be taking a look at Why Bitcoin and Ethereum are crashing and discuss whether there’s still room for the crypto markets to go lower. Of course, we’ll also consider the market’s chances for recovery, and highlight the events that could trigger a new crypto bull run in the future.
Why is crypto crashing and will it recover?
The causes of the 2022 crypto bear market can roughly be categorized into three themes—the unwinding of 2021’s speculative crypto market bubble, the poor macroeconomic conditions, and unsustainable business practices that led to the demise of some of the crypto industry’s biggest players.
The 2021 crypto bubble pops
The first big reason why crypto is crashing is simple. The cryptocurrency market simply grew too large in 2021, with growth in crypto market capitalization significantly exceeding real-world adoption of the technology.
Although NFTs and “play to earn” games like Axie Infinity showed flashes of mainstream appeal, adoption numbers are still fairly low and the usage of crypto-powered apps tends to follow trends in the crypto asset markets. In other words, the mainstream is not showing a lot of interest in actually using crypto when it’s not being perceived as a lucrative investment.
There were plenty of signs that the crypto market was overheated and needed a reality check. At its peak in November 2021, the total cryptocurrency market capitalization was about $3 trillion. Cryptocurrencies such as Dogecoin and Shiba Inu, which have no pretenses of being serious investments, reached astonishing valuations. At its peak, Dogecoin had a market cap of $73 billion and Shiba Inu was valued at $41 billion.
Cryptocurrency ads were plastered across mainstream media, especially sports events that reached tens of millions of users. The 2022 Superbowl, which was held in February when the crypto markets were still holding quite strong, featured advertisements from 4 different cryptocurrency companies. At the same time, prominent celebrities such as Paris Hilton, Justin Bieber and Snoop Dogg were flaunting expensive NFTs as status symbols.
Crypto companies signed massive sponsorship deals targeting the mainstream. signed a $700 million deal in November 2021 to rename the Staples Center arena . In the same month, FTX signed a $135 million deal to rename the home arena of the Miami Heat NBA team to FTX Arena.
These were all signs that the cryptocurrency markets were overextended. Indeed, the two sports arena naming deals mentioned above were signed practically at the top of the 2021 crypto bull market. Inflation became a significant problem for many major economies in 2022, which prompted central banks to raise interest rates. The situation worsened because of the Russian invasion of Ukraine, which severely impacted geopolitical stability and also heavily contributed to the rising prices of key commodities such as wheat, coal, natural gas, nickel and more.
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Why is Crypto Crashing and Is There a Chance for Recovery?
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