17
GOOD QUESTION
Why does Bitcoin keep crashing?
Bitcoin took a Brutal fall in May,
with the value of each unit dipping below
$30,000 for the first time since July 2021.
The world’s largest cryptocurrency is
now worth less than half of what it was
last autumn. Other cryptocurrencies, like
Ether and BNB, have seen similar falls.
Some experts are now warning of a “crypto
winter,” in which the sector’s astonishing
growth is replaced by an extended period
of contraction.
The current crypto slide is being caused
by a combination of short-term and long-
term inputs. To start off, Bitcoin rises and
falls with the rest of the financial market.
While crypto evangelists have long hoped
that its independent nature would make
it resistant to inflation and crises, the past
few years have proved this false.
Recently, general financial markets have
been unsettled by Russia’s
invasion of Ukraine, which
has exacerbated inflation
and supply-chain issues
and increased oil prices.
Slowed growth in China
amid COVID-19 outbreaks
there is also contributing to
financial anxiety. Inflation
led the Federal Reserve and
other central banks to raise
interest rates, which has led
to decreased spending. For
investors looking for a safe port, Bitcoin,
which swings wildly by nature, may seem
too risky.
The volaTiliTy of BiTcoin and other
cryptocurrencies is part of their very ap-
peal to many speculators, who hope to
make money at rates far faster than what’s
possible with normal stocks. But with the
promise of the boom also comes that of the
bust. Since Bitcoin’s inception in 2009,
there have been several major bear and
bull cycles, with short-term investors alter-
nately flooding the market and then losing
interest. Many crypto exchanges, especially
during high times, offer inherently high-
risk propositions, allowing traders to in-
vest with borrowed crypto. If prices start to
drop, whether because of big investors sell-
ing off their shares or other reasons, a lack
of actual cash flow can contribute to even
faster free falls.
Given that crypto derives some of its
value from people’s belief in its poten-
tial, markets can be rattled by surround-
ing skepticism or policy changes. China’s
crackdown on bitcoin mining in 2021,
for example, led to bitcoin crashing from
$65,000 in April to $35,000 in June. The
total market capitalization of crypto simi-
larly fell around that time when Elon Musk
announced in May 2021 that Tesla would
no longer accept Bitcoin for payment, cit-
ing environmental reasons.
Many crypto investors have watched
anxiously as governments of countries cen-
tral to crypto trading or mining—including
the U.S., China, India, and Germany—
have moved toward regulation. Mean-
while, crypto has been shaken by a wave
of hacks and security breaches, includ-
ing a $600 million hack of the Ethereum
side chain Ronin. These
hacks have shaken con-
sumer confidence in crypto
and slowed growth from
new potential buyers enter-
ing the field.
Finally, crypto’s strug-
gles were gravely exacer-
bated by the failure of a
stablecoin called TerraUSD
(UST), a $60 billion proj-
ect that critics are calling
a Ponzi scheme. UST was
designed to always be worth $1, but sank
to as low as 6¢ as holders panicked and
sold off their tokens en masse in a pseudo
bank run.
In response to the crash, the Luna Foun-
dation Guard, which essentially insures
the coin, deployed more than $3 billion
in hopes of defending its dollar peg. But
in doing so, it caused downward pres-
sure on the entire crypto market, causing
other large investors to sell off their Bitcoin
shares. Bitcoin hit its lowest point since De-
cember 2020.
As for whether the crypto slide will
continue, some believe that things will only
get worse as investors panic. But others are
“buying the dip,” or entering the market at
a discounted rate. They believe that despite
day-to-day turbulence, a zoomed-out look
at Bitcoin will continue to show the growth
pattern it has displayed over the past
decade. —anDrEW r. cHoWNEWS TICKER
killing of Palestinian
American journalist
Shireen Abu Akleh,pleaded guilty
May 18 to killing a
civilian in Ukraine,30 years in prison
for homicide, after she
suffered a miscarriageCrypto
markets can
be rattled by
surrounding
skepticism