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Cryptocurrency Markets Witness a Bloodbath: Why is it Happening? Should You Buy Crypto Coins Now?

Crypto markets have spiralled down to their lowest in this year. (Image: Shutterstock)

Crypto markets have spiralled down to their lowest in this year. (Image: Shutterstock)

Starting from 2022, cryptocurrencies, some of which rose to their all-time highs in the preceding years, began trading in red and spiralled down ever since.

The cryptocurrency market faced nothing short of a bloodbath over the last few days. Bitcoin, the world’s most popular cryptocurrency fell near the $25,000 levels a day back, drastically down from its all time high of $69,000. Other altcoins too, suffered the dip and took down the global cryptocurrency market cap to as low as $1.12 trillion. Major cryptocurrencies like Ethereum, Solana and Cardano fell by double-digits, with the market bearing the brunt of this. But what has caused such a sharp dip in the cryptocurrency market?

The reasons for this are many. Starting from 2022, cryptocurrencies, some of which rose to their all-time highs in the preceding years, began trading in red and spiralled down ever since. In the beginning of the year, the dip was mainly attributed to a fresh wave of the pandemic and just when things started to stabilise, developments in the global economic scenario resulting out of geopolitical tensions and inflation.

“The significant dip that is being witnessed in crypto is a global phenomenon. It can be primarily attributed to developments in the macro-environment such as increasing inflation, raising of interest rates by the Federal Reserve, the Russia-Ukraine war, etc. It is also interesting to note that the crypto markets are mirroring the traditional financial markets as both are seeing a correction. It indicates that the crypto markets are attaining maturity – just like other markets, crypto also has a bear and bull run and at present, we are going through a bearish phase,” said Nischal Shetty, co-founder and CEO at WazirX.

“The Crypto Fear And Greed index was in the “Extreme Fear” zone, indicating that investors were too worried and were selling their holdings to minimize losses. What catalysed the bearish sentiment was Fed Reserve announcing that interest rates would rise by half a percentage point. Market participants began panicking over inflation and a potential recession, resulting in equities and crypto markets plunging,” said Darshan Bathija, CEO and co-founder of Vauld.

Bitcoin Feels the Heat

Bitcoin prices, which touched their all-time high in 2021, plunged down near the $25,000 levels on Thursday, after a constant dip over the past week. The world’s most popular cryptocurrency lost 30 per cent of its day-on-day value on the day, as market participants panicked over different issues.

“Though Bitcoin declined to levels near $25,000 yesterday, it stabilised near the $29K level in the later hours of the American trading sessions. With BTC, most altcoins also registered sharp declines,” said Bathija.

“Data showed that the rate of BTC exchange inflow remained relatively high in the last couple of days. Investors often transfer their holdings to exchanges when they intend to sell,” he added.

Luna Moves Far Away from Top 10 List

At the time of writing this article, Luna was ranked 230 in the cryptocurrency index as per CoinMarketCap, and was valued at $0.00003872, 99.99 per cent down from its stable value of $88. The extreme volatility led to halting of the Terra blockchain. “The Terra blockchain has officially halted at block 7607789,” terra said on Twitter on Thursday.

“Terra(LUNA) has had a whirlwind of a week with the token tumbling at an alarming rate. The debacle began when Terra’s algorithmic-based stablecoin TerraUSD(UST), which is pegged against the dollar, fell sharply to almost $0.6. With that, Binance, one of the top global crypto exchanges, temporarily stopped the withdrawal of UST and LUNA. All this led to a cascading effect on the prices of LUNA, spiraling it out of control. The daily chart for LUNA has broken below the ascending channel pattern,” said the WazirX Trade Desk.

“What added to current market woes was the stablecoin UST’s de-pegging. As the de-pegging intensified, LUNA’s prices plunged as low as $0.009598. As a result of this steep price decline and high inflation, the team behind LUNA, Terraform Labs decided to briefly shutdown and restart the blockchain after implementing a patch. This was done to “prevent governance attacks”,” said Bathija.

Should You Buy the Dip?

Cryptocurrency market experts are mostly in the opinion to buy the dip, as they remain hopeful that the market will bounce back.

“Investors should take advantage of this dip and start looking for opportunities in the market. It is a good moment to invest. This is not the first time crypto market suffered a massive loss, and then recovered and become even stronger than before. Same thing will happen this time,” said Kumar Gaurav, founder and CEO of Cashaa.

“In light of the high bearish sentiment in the market coupled with high volatility, retail investors are either trying to minimize losses or trying to buy the dip. Choosing the right exchange to store your assets can make all the difference during volatility. While buying and holding cryptocurrencies until the price goes up is a great investment strategy, you could also earn a passive income on your crypto till you decide to sell it,” advised Bathija.

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first published:May 13, 2022, 16:50 IST