Bitcoin: Cryptocurrencies on the decline - "maximum catastrophe"

Created: 05/13/2022, 15:39

By: Lisa Mayerhofer

Cryptocurrencies like Bitcoin suffered massive price losses over the course of the week.

(Archive image) © Paulo Lopes/Imago

Cryptocurrencies like Bitcoin suffered massive price losses over the course of the week.

Experts compare the drop in prices with the 2008 financial crisis.

New York – Millionaire in one fell swoop – Cryptocurrencies like Bitcoin can make that possible.

Like the Swiss Dadvan Yousuf, who invested his first money in cryptocurrencies at the age of eleven and became a multimillionaire.

Coming from a poor background - his family had to flee Iraq - he made it last year

on the prestigious Swiss Forbes list “30 under 30”.

No wonder that numerous investors have rushed into the cryptocurrency market in recent years.

Bitcoin, the best-known digital currency, has soared – on November 10, 2021 it was $ 68,789.63 (about 66,200 euros) per coin.

Bitcoin and other digital currencies are recording massive price losses

But now there is a mood of crisis: On Thursday, many digital currencies had to accept significant price losses again.

On the Bitfinex trading platform, bitcoin fell to its lowest level since the end of 2020 at $26,591. In just one month, bitcoin has lost a third of its value.

Since the beginning of the year it has been a good 40 percent.

For some investors, this means that two years of financial gains have disappeared in a very short space of time.

Other digital stocks also continued to fall in price.

Ether, the second-largest digital asset after Bitcoin, fell well below the $2,000 mark.

Ether has lost about half of its value year-to-date.

The market value of all around 19,400 crypto assets is currently around $1.1 trillion.

The record figure of almost three trillion dollars reached in November last year is a long way off.

Bitcoin price drop: experts vary between waiting and panic

The

calls it a "The Moment of Panic" that equates to the worst setback for cryptocurrencies to date, when Bitcoin plummeted 80 percent in 2018.

But this time a lot is different: more people and institutions are now affected by the falling prices.

While some experts say the plunge is overdue and want to wait and see, others liken the digital currency plunge to the start of the 2008 financial crisis. "It's like maximum catastrophe," said Dan Dolev, an analyst covering crypto companies and financial technology at Mizuho Group covers, opposite the

.

"It's hard to say, 'Is this Lehman Brothers?'" said Charles Cascarilla, a founder of blockchain company Paxos, referring to the company that went bankrupt at the start of the 2008 US financial crisis.

"We'll need some more time to figure that out.

You can't react at that speed."

Cryptocurrencies: US Treasury Secretary calls for regulatory action

Experts attribute the price losses to two main reasons: On the one hand, the prospect of rising key interest rates in many places is causing skepticism on the crypto market.

Digital investments do not generate current income, interest-bearing investments such as fixed-income securities are becoming more popular.

And cryptocurrencies are becoming less and less interesting for investors.

The second reason is turbulence in a well-known cryptocurrency called TerraUSD or UST.

This is a so-called "stable coin", which is to be distinguished from other digital values ​​by its particular value stability.

TerraUSD wants to achieve this through a special algorithm designed to keep the cryptocurrency in a stable relationship to the US dollar.

In the past few days, however, the UST exchange rate has detached itself from its peg to the dollar and has come under considerable pressure.

The US Treasury Department is also dealing with this incident: "We need a regulatory framework," US Treasury Secretary Janet Yellen said

Thursday about cryptocurrencies at a congressional hearing, according to the

“In the last few days we have seen how high the risks are.” Stablecoins would pose the same risks “that we have known for centuries related to the banking panic,” she added.

Bank panic refers to the rush of customers to a bank to withdraw funds, which in turn plunges the bank into insolvency.

Something similar may have happened to the Terra USD company when the UST depreciated from the dollar, although the reasons are not entirely clear.

However, the incident casts a bad light on the already tarnished reputation of many digital currencies.

They are considered energy intensive and prone to criminal abuse.

In addition, they often fluctuate greatly in value, which makes them appear rather unsuitable as an investment for small investors.

(lma/dpa)