Cryptocurrency investors these days are watching in disbelief as the value of their investment melts away. Prices of bitcoin and other cryptocurrencies follow stock indices, but with much higher losses, which shows that they did not justify the role of custodians of value in uncertain times.
Wall Street was hit by a perfect storm this year. Fear of high inflation, the Fed's tightening monetary policy, and the looming recession have triggered investors to flee risky assets and seek safer havens. One would think that the ideal time to bet on bitcoin as a shelter from all the above plagues.
Yet, in such conditions, the world's most famous cryptocurrency has lost significantly more than any stock index. The price of bitcoin has fallen more than 12 percent in the last 24 hours alone and more than 30 percent in the past week.
It hit a low of $ 26,848 yesterday, the lowest level since late December 2020 and 61.1 percent lower than the record high ($ 69,000) reached late last year. This is the second time this week that bitcoin has fallen below $ 30,000.
Analysts called the level a key resistance point and concluded that bitcoin could collapse if it failed to stay above $ 30,000. Other cryptocurrencies recorded even greater losses. Ether, the second-largest capitalization, lost about 36 percent in a week, and some of the top 10 currencies, such as Solana and Cardana, lost more than 50 percent of their value.
Collapse of the TerraUSD "stablecoin"
There is another reason that increased the intensity of the fall in cryptocurrencies. Investors in the crypto market were particularly concerned about the collapse of the currency TerraUSD (UST), the third-largest ‘stablecoin’, created to maintain parity with the dollar.
Decentralized, algorithmic ‘stablecoin’ backed by a combination of digital assets, including bitcoin, should be firmly balanced with the dollar. The problem is that bitcoin has not proven to be a protection against anything, concludes Forbes analyst Taylor Tepper.
After all, with inflation at its highest level in four decades, you would expect a currency that wants to retain its purchasing power and be independent of any central bank to gain more followers. Instead, bitcoin seems to find supporters when the price rises, and a bunch of panickers when the market is dominated by sellers, like any other high-risk asset.