Crypto Market Overview 2022
The crypto market has seen some of its biggest declines in the past 6 months. The market cap nearly halved from $2.972 trillion in November ’21 to $1.205 trillion at the time of writing this article. This week started with a market cap of $1.654 trillion, making this week’s decline the steepest drop in recent crypto history at 27% in just one week.
In the past week, the world’s largest cryptocurrency, Bitcoin (BTC), fell below $29,000 for the first time since December ’20. In these seven days, it traded between $36,607 and $26,350, hitting its lowest value today. Ethereum (ETH), the second-largest cryptocurrency after Bitcoin, traded at a $2,573 high during the past week, although it was trading at just $1,748 early today.
Let us check the price movement of Bitcoin from April 2022 to May 2022.
The current value of Ethereum is at 59% from the $2,940 price at the time of the announcement by the Federal Reserve. This crashed the crypto market, whereas Bitcoin has not crashed as far at 72% of its trading price of $39,820.
The following chart shows the price of Ethereum in the last month.
Tether (USDT), a fiat-collateralized stablecoin is the third-largest cryptocurrency. It is the world’s most popular stablecoin and is one of the foundations of the crypto ecosystem, as it allows traders a safe place to put their cash between trading on more volatile coins. It dropped from its peg of $1 to an all-time low of $0.97 early today. Tether claims its tokens are backed by actual currency, whereas Terra holds its $1 place by trading Luna as an offset. The group that runs Tether continues to let people redeem their tokens for $1 each but charges a 0.1% fee for withdrawals up to $1000. According to Paolo Ardoino, CTO of Bitfinex and its stablecoin Tether, the group has honored over $300 million of redemptions in the last 24 hours.
The graph below shows Tether’s market cap from February 2022 to May 2022.
Stock & Crypto Market Crash
The stock market is tanking and subsequently, so is the crypto market. People who have invested in cryptocurrencies are panic-selling and moving their money into other investment forms with less risk and less volatility. The S&P 500, the main benchmark for US stock market performance, declined by 13.3% from the beginning of the year to April. This is the steepest four-month drop since 1939. Nasdaq, an American stock market that allows investors and brokers to trade stocks electronically, declined by 25% this year.
Why does thE 2022 crypto crash happen?
So why exactly are the stock and crypto markets plummeting? Several events have contributed to this. If you don’t already know what they are, keep reading for a fair breakdown of these events to see why this crypto crash happens.
- Covid-19. Since the beginning of the year, countries around the globe have been lifting Covid restrictions, and life is going back to the way it used to be. In turn, the US Federal Reserve has changed its tactics to deal with the change in cash flow and surging inflation rates. According to the Consumer Price Index, which measures what consumers pay for goods and services, 2022 showed an 8.3% increase from 2021. On Wednesday last week, the Federal Reserve announced an interest rate increase of half a percent, its biggest increase in over 20 years. This move was executed to counter the unsustainable inflation rates and get prices back under control. They hope to encourage people to save their money instead of spending it by doing this.
- Stock Prices. This higher interest rate will likely negatively affect valuations and stock prices, probably hitting the tech industry hard. In recent years, tech companies have been viewed as a predictable source of growth. Still, venture capitalist Arjun Kapur mentions that many tech companies get over-valued, and since going public, many of them have lost their valuations.
- Chinese Economy. However much the fear and panic about the recent pandemic seems to be over and done with in many parts of the world, it is still affecting some countries strongly. One of these countries is China. There are many questions about China’s economy and its future, as production levels remain low due to ongoing lockdowns. The slowing down of China’s export growth has fed into fears of the state of the world economy, as China is such a major player. Stocks in the Asia-Pacific markets, Europe, and the US are all experiencing a nosedive as investors worry that global growth is diminishing in a period when central banks are raising interest rates.
Is the Russian invasion related to the recent crypto crash?
Another reason for the turmoil in the investment world is the economic uncertainty caused by Russia’s invasion of Ukraine. Originally thought by many as something that governments around the world would soon stamp out, the war continues to this date as countries are afraid of starting a nuclear war with Russia. Putin’s attempts to take over Ukraine have been followed by threats, and the cutoff of oil and other commodities, resulting in the rising prices of these products.
If you have already invested money into crypto and you are worried about losing more money, maybe you should just hold on to it for now. After all, the markets didn’t look so promising early in 2020 when the market was experiencing a similar tumble, but it recovered sometime later. Some people think of investment as gambling, and it is if you play it like that, but ideally, it should be a long game in which you win. A recommendation from financial experts is to check on your investments every quarter and conduct a review on your plan for them.
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