For the first time in 16 months, Bitcoin fell below $26,000, part of a larger cryptocurrency sell-off that saw the entire market lose more than $200 billion in a single day.
According to Coin Metrics, the price of bitcoin fell to $25,401.29 on May 12. It’s the first time the cryptocurrency has dropped below $26,000 since December 26, 2020.
Ether, the second-largest digital currency, has plummeted to $1,704.05 per token. This is the first time the coin has dropped below $2,000 since June 2021. Ether was last trading at $1,937.88, down 8.8%.
Investors are abandoning cryptocurrencies at a time when stock markets have fallen from their post-coronavirus pandemic highs due to concerns about growing prices and a poor economic outlook. Inflation in the United States rose 8.3 percent in April, above economists’ expectations and approaching the highest level in 40 years.
What Happened With Terra’s Coins
Traders are also concerned about the Terra stablecoin network’s breakdown. The TerraUSD, or UST, is designed to reflect the dollar’s worth. However, it fell below 30 cents on Wednesday, causing investors to lose faith in the so-called decentralized finance space.
Stablecoins are the cryptocurrency equivalent of bank accounts in the unregulated crypto world. When markets are volatile, digital currency investors typically turn to them for protection. However, as investors fled in droves, UST, an “algorithmic” stablecoin backed by code rather than cash in reserve, has failed to maintain a stable value.
On Thursday, UST was trading at roughly 41 cents, still well below its $1 target. Another Terra token with a floating price meant to mitigate UST price shocks has lost 99 percent of its value and is now only worth 4 cents.
Investors are concerned about the implications for Bitcoin. Do Kwon’s Luna Foundation Guard has amassed a multibillion-dollar Bitcoin reserve to assist UST in times of need. The fear is that Luna Foundation Guard will sell a large portion of its Bitcoin holdings to salvage its ailing stablecoin. That’s a dangerous gamble, not least because bitcoin is a highly volatile asset.
As a result of Terra’s demise, there were fears of market contagion. Tether, the world’s largest stablecoin, too fell below $1, falling to 95 cents at one point. Economists have long warned that ZTE could not have enough reserves to maintain its dollar peg if big withdrawals occur.
Inflation, Downturn, and War
Oleg Giberstein, co-founder of automated crypto trading platform Coinrule, believes that crypto is experiencing the same challenges as other parts of the economy, resulting in price declines.
“Everything is down, and the economic projection for the next 6-12 months is dismal,” he said. With poor economic growth and high inflation, central banks are caught between a rock and a hard place. As a result, investors are avoiding ’risky’ assets such as crypto and tech stocks.
When it comes to determining whether this downturn is the start of a long-term trend or just a blip, Giberstein believes the market could stay hard for up to two years, but things could get worse during that period.
Global stocks had their worst day in June 2020, as investors liquidated assets across the board. In addition to armed turmoil in Europe, the market is battling the effects of fast-rising US interest rates.
The US Labor Department and the UK’s Office for National Statistics both released inflation data this week, which will almost certainly affect interest rates and, by extension, crypto prices.
Is ‘buy the dip’ a Good Strategy?
The ‘buy the dip‘ idea is predicated on the assumption that price drops are only transient blips that will eventually correct themselves. Dip buyers attempt to profit from price falls by purchasing at a discount and profiting when prices increase.
Buying cryptocurrencies at any price, let alone a dip that could turn into a long-term trend, is risky because cryptocurrency markets are volatile. Prices may rebound to former levels, but they may also fall even further, putting your investment at risk.
If history is any guide, the current drop (or crash, depending on your perspective) could rebound like it did last year, when prices plummeted to comparable lows before recovering and even peaking in the autumn. But of course, they might not.
Bitcoin prices, for instance, have demonstrated some seasonality so far, falling in value to varying degrees in the spring before rebounding in the early summer. However, as with any investment, past success is no guarantee of future outcomes, especially in the volatile world of cryptocurrency.
„Many a rookie investor has been burned trying to ’grab falling knives,“ according to Oleg Giberstein.
He urges anyone interested in ’buying the dip’ to set aside a fixed amount of money each month to buy BTC or ETH and not to be overly concerned about price fluctuations over the next two years.
Buyers should hedge their bets, according to Pavel Matveev of the digital exchange Wirex. “Diversifying your crypto assets with multiple cryptocurrencies is crucial to mitigate risks,” he said.
Conclusion
This week’s crypto meltdown provided several lessons. Even the most popular cryptocurrencies, like Terra, can experience overnight losses and struggle to stay afloat. The concept behind decentralized algorithm stablecoins like TerraUSD is intriguing, but it requires a more effective technique. Centralized stablecoins like Tether (USDT), which are routinely lambasted for having insufficient financial reserves, appear weak in times of crisis.
This week will go down in crypto history as a watershed moment to stop and think is it good time to buying crypto on crypto trading platform in Canada, and it will act as a wake-up call for crypto enthusiasts who need to realize that there is still a lot of work to be done.
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