Cryptocurrencies: $1,400 Billion Evaporated in 2.5 Months

01/25/2022

Bitcoin has more than halved since November. Other cryptocurrencies have also lost significantly since the peak in November.

After the hype in crypto coins last year, the lavish party with high valuations has given way to a hangover. Bitcoin, the largest digital currency in the world, is more than half below the record price of $ 68,992 that it reached on November 10. Today, the digital currency drops more than 7 percent to 33,400 dollars.

Other cryptocurrencies have also had to give up considerably in recent weeks. The second largest cryptocurrency, Ethereum, peaked at $4,812 in November. Today it was $2230 at its lowest.

In two and a half months, the total market value of digital currencies has fallen by more than $1,400 billion. According to the crypto site CoinMarketCap, the total value of cryptos on November 9 was about USD 2,934 billion, compared to USD 1,532 billion today.

The lower prices have to do with a decrease in the crypto hype. It is certainly difficult in crypto markets to find out why the prices are rising or falling. There was a clear crypto hype last year, with currencies such as bitcoin rising sharply. That hype has now died down.

During the lockdown, many people certainly had more time to trade and often check crypto apps. That is now over in many countries, so there is less time to deal with crypto coins. Such explanations often also play a role in hypes.

Another possible cause is the prospect of higher US interest rates. This leads to the expectation that bond investments will yield more in the long run, making that alternative more attractive again. Rising interest rates are also causing prices to fall in traditional markets and it seems that this explanation also partly applies to crypto.

Investors were given a reality check. You now see that more questions are being raised about, for example, non-fungible tokens (NFTs) and whether the market has gone too far. NFTs are digital tokens that use blockchain technology to register who owns a digital object.

You see the same in the story around web 3.0, which would be completely decentralised and in which crypto tokens would play a major role. Investors are now scratching their heads with the question of whether this decentralised promise will actually be fulfilled.

A plunge in the cryptocurrency markets may have you feeling rattled, but use it as a wake-up call to re-assess why you're involved in the market to begin with. What opportunities and risks does it present? While Bitcoin, for one, has rallied back hard following previous major declines, there's no guarantee that it does so again, especially if it's facing serious existential questions as countries ban the use of it and potentially the ability to even own it. And that's the kind of real risk that an investment can be destroyed by or profit from, if the reality is less severe than the expectation. 

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