Bitcoin crash

The crypto market has been in a downturn in recent months. Major virtual currencies and digital assets are currently experiencing unprecedented lows. Recently, the leading digital asset market, the crypto market, has lost $2 trillion in value after hitting an all-time high of $3 trillion in November 2021. Various crypto firms have also been exposed to larger financial loss than ever experienced in the market. For example, Bitcoin’s value has dropped by more than half since its peak in November 2021.  It dropped below 23k U.S. dollars, roughly 70% from its all-time high.

Crypto crash can truly be overwhelming for investors and crypto enthusiasts, but it is not impossible to survive it. This article entails an in-depth piece on the history, future, and the current crash of the crypto market. And also how to navigate the crash and avoid getting REKT.

The Crypto Market Crash

The cryptocurrency market is similar to the stock and traditional markets. When the value of digital assets or cryptocurrencies rises, investors refer to it as a BULL MARKET.  But when it continuously falls, the market is referred to as a BEAR MARKET. The moment a bear market happens, a Crypto crash follows.

 

Last year, the crypto market went bullish, and token prices went parabolic, with a new all-time high following another. Investors became greedy, and 10x gains are common.  After several months of price inflation, the table turned, asset prices plummeted, and the market went DIP. Furthermore, the crypto crash circumstances frequently coincide with an increase in stories highlighting the number of losses from unlucky or reckless investors who invested their life savings in cryptocurrency.

Has crypto crashed before? A brief history

Crypto crash  $32 to $0.01 in 2011: -99%

In 2011, the first crypto crash in history was caused by Mt. Gox, a Japanese crypto exchange that houses and traded the most Bitcoin. At that moment, Bitcoin, which was trading at $32 suddenly dropped as low as $0.01. This crash was triggered due to the exchange’s security breach and a sum of 850,000btc was stolen. In just one day, BTC value at one penny.

 

Crypto Crash 2015: -56%

Another crash occurred when Bitcoin fell from $1,000 to $200 in 2015. It dropped below $700 after one month. This crash happened when the Chinese financial institutions halted monetary establishments from conducting BTC transactions. Bitcoin plunged further in the following year, trading at around $360 in April 2014 and later $170 in January 2015. The 2014 crypto crash was traced to the hacked Mt. Gox exchange, which stopped the withdrawal of BTC on its platform in early February 2014.

The fall of Mt.Gox
Image Source: Bitcoincharts

The overall crypto market continued being bearish until the reversal started in August 2015. Bitcoin finally returned to $1000 level in January 2017 amid the strong bull market. This occurrence is the most extended price rally period ever in Bitcoin’s history.

December 2017-December 2018: -84%

After Bitcoin had suppressed $1000 in January 2017, it continued to $20,000 toward the end of the year. At the beginning of  2018, BTC started losing over 60% of its value in just 1 month. In January 2018, Coincheck suffered a massive hack of around $530 million worth of  NEM (XEM) cryptocurrency.

Crypto crash December 2017-December 2018: -84%
Crypto crash December 2017-December 2018: -84% Source: Bloomberg

According to Cointelegraph, the crypto crash got extended due to Facebook and Google ban on Initial Coin Offering(ICO) advertisement and token sales on their sites in march and June 2018, respectively.  

2020 Covid 19 Pandemic

Bear market continues till 2020, as BTC failed to recover back to $20,000. The 2020 Pandemic was also another notable moment in the history of the crypto crash.

2020 Covid 19 Pandemic Crypto Crash
2020 Covid 19 Pandemic Crypto Crash Source: Refinity Datastream

In March 2020, Bitcoin suffered one of the worst crashes ever. Bitcoin’s value plunged by half in just two days. Over a month, it dropped from above $10,000 in February to below $4,000 in March.

  

Crypto crash 2021: -50%

Bitcoin entered a bull run in April 2021 when it soared past an incredible $64,000 per coin. A week later, the global crypto market cap hit $1 trillion. This made Tesla buy $1.5 billion bitcoin and also started accepting it as a payment method for its products.

Elon Musk and Bitcoin
Elon Musk and Bitcoin Source: Bloomberg

Due to these moves, Tesla CEO, Elon Musk, announced that Tesla will start accepting Dogecoin, a meme coin as means of payment on his platform. The company also invested $1.5 billion in bitcoin at the beginning of 2021.

Shortly after, BTC began to retrace, dropping to $29k in three months. Bitcoin mining environmental consequences, social, and governance (ESG) related issues were the main cause of the drop. It later got escalated when the CEO of Tesla, Elon musk, stopped the acceptance of bitcoin as a means of payment for his company in May.  This particular crash didn’t last long, as Bitcoin recorded a new all-time high of $68,000 in November.

Why is the crypto market crashing? 

It is critical to remember that crypto assets are not the only ones crashing. The stock market has also been in a major slump, and policymakers are attempting to control inflation by tightening monetary policy and raising interest rates. Inflations, macroeconomics, and high-interest rates are also among the main factors influencing people’s willingness to invest in risky digital assets and all other alternatives. As interest rates rise, savings accounts become more appealing. Some investors may be more comfortable putting their money where it can earn predictable returns. When prices fall sharply, as they did in the spring of 2022, it can exacerbate market pressure by forcing some investors to free up cash to meet other obligations.

Regulators’ actions across the world also contribute to investor doubt or skepticism and mostly lead to a crypto crash.  As in most markets, fear, uncertainty, and doubt also do play a significant role in perpetuating a bearish market. Uncertainty tends to make people less likely to invest in speculative assets. Furthermore, when a cryptocurrency project fails, and many people lose money, the cryptocurrency market tends to crash. The repercussions frequently result in a sell-off and sum up to the crypto crash. These have been the primary cause of crypto crashes. Let’s look into the 2022 crypto market crash and its unpredicted causes.

2022 crypto crash: How it started and the major causes.

Ups and downs are routine in the crypto market, but the current 2022 crash is unprecedented, despite 2021 being one of the best times for investors in the crypto history. The cryptocurrency market started to drop severely in January 2022, when it dropped below the $2 trillion mark. Shortly after that, it went downtrending, impeding a slight recovery in April. Bitcoin declined almost 70 percent in value from its all-time high last year in November, while other currencies like Dogecoin, Avalanche, and Solana have seen almost a 90 percent hit. Recently, the total crypto market cap sat at $860 billion. Here are the causes of 2022 slumps in the crypto market:

 

Russia and Ukraine War

For millions of displaced Ukrainians, the war in Ukraine has been a nightmare. Instability in international relations has a knock-on effect on all asset markets. Although, markets were already declining before war. As cryptocurrencies play an essential role in financing and providing aid to both sides of the conflict, the crypto market is subjected to several risks as any other market. 

2021 pandemic (COVID 19)

The Covid-19 pandemic forced most of the world to shut down for extended periods. The global economy effectively came to a halt during this time. Only a few critical businesses were able to operate, putting millions out of work and forcing businesses to close down across the board.

Cost of Living and Energy 

As many countries rely on Russian gas and oil, several European countries saw a huge price increase in energy and other necessities like food and medicine.  As a result, fewer people have spare cash to invest in cryptocurrencies, digital assets, and the stock market.

After the March 2020 market crash, investors enjoyed a huge bullish run in which asset prices inflated. Many people were at home with the money they would not have had otherwise. Job losses and lockdowns encouraged retail investors to stretch their disposable incomes as far as possible, and many made a tidy profit trading stocks and cryptocurrencies.

Fast forward to late 2021, and the cost of the living crisis became apparent globally. Today, food shortages, supply chain problems, a lack of affordable housing, and high electricity prices restrict retail investors from capitalizing on market downturns. 

Some notable occurrences in the 2022 crypto crash 

Coinbase lost billions of dollars 

Among all crypto companies, no company witnessed a greater loss than Coinbase. When the U.S. BaseD cryptocurrency exchange went public in April 2021, it was a thriving moment for the developing crypto world. Currently, the crypto exchange has endured a grim,  struggling with a crypto market crash that has dropped its stock price by 81% and forced it to cut down its workforce. Those struggles proceeded when Coinbase reported a 63 per cent drop in revenue in the second quarter and suffered a $1.1 billion loss from a year ago.

 

Celsius Network Halts Withdrawals and Transfers Between Accounts due to “Extreme Crypto Market Conditions.”

Celsius Network fully pays off Bitcoin loan as user funds remain locked 1024x682 1
Celsius Network. Source:Finbold

The Cryptocurrency lending company, Celsius Network,  announced a “Pause” in all withdrawals, transfers and swaps between accounts due to “extreme market conditions”. The company announced that it took such a decision in order to meet its withdrawal responsibilities over time, while it is struggling to stabilize liquidity and protect assets in the current crypto crash. The firm announced a major selloff, as the total value of the crypto market plunged below $1 trillion for the first time in 17 months.

“We are taking this necessary action in order to stabilize liquidity and operations while we take steps to preserve and protect assets,” the company disclosed in a blog post

 

“But we believe that our decision to pause withdrawals, swap, and transfers between accounts is the most responsible action we can take to protect our community. We are working with a singular focus: to protect and preserve assets to meet our obligations to customers,” Celsius added in a blog post.

The company’s token, CEL, dropped hugely by 51% in value by dropping down to $0.195, while it was trading at nearly $1 some months ago. 

Crypto companies lay off hundreds of employees.

 Several crypto companies across the world laid off hundred of their employees blaming the current bear market.  

Coinbase
Monitors display Coinbase signage at the Nasdaq MarketSite in New York, U.S. source:Bloomberg

Coinbase CEO Brian Armstrong took to his Twitter to announce that the cryptocurrency exchange would be laying off 18 per cent of its workforce, blaming the more extensive market turndown. The largest exchange company laid off 8 per cent of its India workers as part of its global layoff plan. This is not an unusual incident, as many other global crypto companies also resorted to decreasing their workforce. 

Crypto.com

Crypto.com’s CEO also laid off 260 employees due to the unstable market conditions. Crypto lending platform, BlockFi isn’t left out.

Gemini

Gemini crypto exchange, run by the Winklevoss twins, also cut 10 per cent of its workforce and justified this by claiming that the crypto winter is here. The twins disclosed in a blog post that the crypto industry is in a “contraction phase” and this downtime has been “further compounded by the current macroeconomic and geopolitical turmoil.” 

Blockchain.com cuts 25% of its workforce due to the Crypto bear market

Cryptocurrency exchange, Blockchain.com announced that it was cutting 25% of its workforce, equaling about 150 workers. The company cited the harsh bear market conditions as the catalyst for its financial losses. The exchange previously disclosed it was dealing with a $270 million loss from lending to beleaguered hedge fund, Three Arrows Capital. The exchange closed its Argentina-based offices and halted team recruitment plans in various countries. 44% of the affected workers are in Argentina, 26% in the U.S., 16% in the U.K., and the rest in other countries, the company explained. A representative of the company, in an interview with CoinDesk via email, claimed that the reduction will bring the firm back to its January level.

The Future of Cryptocurrency amidst the Current Crypto Crash

It’s hard to predict where things are steered long-term. Still, in the future,  experts are suggesting aspects like regulation and crypto payments adoption by various companies to try and change the market positively.

 Crypto regulations 

The cryptocurrency industry as a whole will see a lot more regulation focused on investor insurance, transparency, and limits to risk-taking. Legislators in Washington D.C. and from other countries are striving to figure out a way to establish laws and guidelines to make cryptocurrency safer for investors and hard for cyber criminals.  Once it’s established,  retail investors will be able to invest their earnings in whatever way they prefer. So we should expect more global discussion about cryptocurrency regulation. 

 More crypto payment adoption by various companies 

Many companies are looking into investing in and adopting cryptocurrency. In 2021, AMC announced it would accept Bitcoin payments. Also, Fintech companies like PayPal and Square are speculating on crypto by enabling users to buy crypto coins on their platforms. Elon Musk’s company, Tesla, accepts Dogecoin payments. Experts predict more and more of these in the coming years.

How to navigate storm waters and avoid getting REKT during Crypto Crash

Navigating the crypto market during a crash can be overwhelming and complicated, particularly for new investors. Several cryptocurrency analysts have advised people to “buy the dip” because they believe the market will soon begin to rise. However,  for those who want to avoid investing in the current bear market, investing in a token during its pre-sale phase is an option.

The cryptocurrency markets are notoriously volatile and susceptible to global events. One of the fundamental ways to avoid a cryptocurrency crash is to avoid investing more than you can afford to lose in the first place. Also, by employing a solid investment strategy, you can mitigate the effects of a crypto crash. Some investors prefer to take profits throughout a bull market cycle in order to offset any losses that may occur following a sudden drop in price action. 

Short selling is another way to navigate a bear market or a crypto crash. Short selling is a kind of trading strategy in which investors sell off their tokens at a comfortable price, wait until the price falls, and then purchase tokens again. Short selling is a sophisticated trading strategy that exposes investors to significant risk. On the other hand, experienced traders often use it to reduce losses during a bear market.

Furthermore, the tail end of a cryptocurrency crash is when a lot of innovation happens. A bear market is frequently regarded as the best time to build and create new exciting products. Many great companies today were established during a bear market.

Warren Buffet- a great American business magnate, investor, and philanthropist once said, “Be greedy when people are fearful, and fearful when people are greedy.”

Warren Buffett
Warren Buffett Source:BizEducator.com

Long-term crypto investing: What to do during a Bear Market

For investors who invest in crypto for the long-term using a buy-and-hold technique, big dips are nothing to be extremely worried about, Humphrey Yang, the personal finance expert behind Humphrey Talks said. Humphrey also discloses he often avoids checking his investments during volatile market falls.

“I’ve been through the 2017 cycle, too,” Yang says, referencing the “crypto crash” of 2017 that saw many major cryptocurrencies, including Bitcoin, lose major value. “I know that these things are super volatile, like some days they can go down 80%.”

The chief technical analyst at Token Metrics, Bill Noble, said during an interview.

“It’s all part of the game, so the best thing to do is to just deal with it. Big dips are nothing to be overly worried about, but you should also avoid checking your own crypto investments during down times.”

Experts recommend keeping your cryptocurrency investments to under 5% of your portfolio. If you’ve done that, then don’t stress about the swings, because they’re going to keep happening.

“Volatility is as old as the hills, and it’s not going anywhere,” Noble said. “It’s something you have to deal with.”

As long as your crypto investments don’t stand in the way of your other financial goals and you’ve only put in what you’re ultimately OK with losing, it is recommended to use the same strategy that works for all long-term investments: set it and forget it. 

If this type of extreme drop bothers you, you may have too much riding on your crypto investments. You should only invest what you’re OK losing. But even if the drop is making you rethink your crypto allocations, the same advice still stands — don’t act rashly or upend your strategy too quickly.

Conclusion 

The market has never been stable from the start, and crashes have occurred several times even more than it was listed above in the previous years.  Therefore, a crash market shouldn’t stop investors from trading and in fact the best time to buy. The great investor, Warren Buffet also advised: “The best time to buy is the time of panic.”

Crypto projects place less emphasis on token performance and marketing. Instead, they can devote more time to what is truly important in the technologies and products they develop during the bear market. Likewise, the bear market is the ideal time for investors to learn more about their investments and broaden their understanding of global investment trends. Educating oneself can also be one of the most effective ways to navigate a bear market. Understanding technology and market trends could put you in a better position for the upcoming bull market. Lastly, learning how to trade without emotions can also help you maximize your profits hugely.

 

Any investment/financial opinions expressed by Play to Earn Diary are not recommendations. Our content is for educational purposes only. If you plan to invest in any game or cryptocurrency then please do your own research and only spend what you can afford to lose.

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