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Why is cryptocurrency crashing?


Cryptocurrency has been having a rough time of late (Picture: Reuters)

Cryptocurrency is having a rocky time at the moment, with the market value of the digital assets falling below $1 trillion earlier this month.

This is the first time since January 2021 that cryptocurrency has reached as low as $926 billion according to data site CoinMarketCap.

Bitcoin, the largest cryptocurrency, was badly affected, falling to an 18-month low of $23,750 (£19,475) – its value having gone down around 50% this year.

The global cryptocurrency market peaked at $2.9 trillion in November 2021 – but what’s behind the downturn this year?

Here’s what’s been going on…

Why is cryptocurrency crashing?

Although there isn’t a specific reason for the crypto crash, experts have suggested that it’s the wider global climate which is to blame, rather than anything to do with the currency itself.

As well as the cost of living crisis, inflation has been soaring in recent months – hitting a 40-year high in the UK back in May – and it’s not just the UK which has been experiencing this, with inflation in the US also rising to around 8.6%, according to Marketwatch.

All of this means that big investors are taking less financial risks.

The soaring cost of living has made people less likely to invest (Picture: Getty Images)

In the last two months alone, investors have ditched riskier assets in the face of high inflation and fears that interest rate raises by central banks will hamper growth.

Meanwhile those who have less money are far less likely to invest – which in turn will have a knock-on effect on the value of crypto.

It’s worth noting that because cryptocurrencies are not regulated by any financial authorities – which means that if they lose value, anything you’ve made from crypto could be wiped out and potentially take your life savings with it, if you used those to invest in the first place.

This happened back in May when Ethereum, the world’s second largest digital currency, plummeted by 20% in the space of 24 hours.

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That day also saw more than $200 billion wiped off the cryptocurrency market – sending investors into a panic.

Last month also saw two other coins – Terra Luna and TerraUSD – collapse, with Terra Luna, which reached a high of $118 in April, falling to a value of $0.09, while TerraUSD plummeted down to a worth of $0.4.

What should you do with Bitcoin investment?

That depends on a number of factors: how much you’ve got invested, what the time horizon is for your investment and your own tolerence for risk.

Generally speaking, you should only ever invest risk capital, that is – money you can afford to lose. If you took that approach with Bitcoin and its rise or fall isn’t going to cause you any material hardship, it’s best to hold on to your investment.

‘Take a long view and try and ignore the short-term volatility,’ Sam Volkering, the cryptocurrency expert at Exponential Investor recently told Metro.co.uk.

Although Bitcoin is slumping right now, there’s nothing to suggest it’s value won’t start to rise again in the future – and therefore your investment could once again prove financially worthwhile.


MORE : Martin Lewis hits out at ‘lying thieves’ using his face on Bitcoin scams: ‘It is not real’

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