Rapidly Falling Cryptocurrency – What Happened Next in Crypto Market
Rapidly falling Cryptocurrency: Without the support of physical assets, cryptocurrencies are extremely vulnerable to the ups and downs of the financial world.
As the Ukraine war drags on and high crude oil prices, coupled with inflation, are haunting countries, cryptocurrencies are also falling rapidly around the world. In a little more than six weeks, the global crypto market lost nearly $830 billion, hitting investors while stock markets around the world are experiencing sharp volatility. The global market capitalization (m-cap) of crypto stood at $1.27 trillion (trillion) on May 16, less than half of the $2.83 trillion in November last year. The most expensive cryptocurrency bitcoin was trading at $ 29,504.9 (about Rs 23 lakh) per coin as against $ 64,862 (about Rs 50.5 lakh) in November.
The major fall or Rapidly Falling Cryptocurrency came in the second week of May due to the sudden collapse of “Stablecoin” TeraUSD (code name UST), whose m-cap fell 63 percent to $6.16 billion (Rs 47,934 crore) from a month earlier. Stablecoins like TeraUSD create new coins or destroy old ones with complex code, to maintain stability in price. But as soon as the big investors pulled out of it, it fell below $ 1, and then on May 11, it came down to $ 0.30. Its brother Coin Terra (Luna) has also fallen heavily and has taken billions of investors’ wealth. Indian crypto exchanges even delisted Terra (Luna) from trading as its price fell below zero on 13 May.
This fall in cryptocurrencies could not have come at a worse time for investors in India. This steady decline in cryptocurrency left millions of investors moaning even before the 30 percent tax imposed in the Union Budget in February. According to industry estimates, as many as 15-20 million Indians had invested around $6 billion (Rs 46,695 crore) in cryptocurrencies on digital platforms in November last year.
The reasons for the sharp decline in crypto are well known. Share prices on the stock exchanges are supported by the underlying assets and revenues of listed companies, but crypto has no such support. People trade more than 7,000 cryptocurrencies, and the number in circulation will be much higher. Their uncontrolled and decentralized means that anyone with knowledge of their technology can launch crypto. With little backing of physical assets, cryptocurrencies are extremely vulnerable to the ups and downs of the financial world.
Uncertainties related to the Russian invasion of Ukraine took a toll on global stock markets and caused them to fall sharply. Crude oil prices (Brent) remain around $110. At the same time, supply constraints created by the war fueled inflation, forcing the US Federal Reserve to raise interest rates by 50 basis points (bps) earlier this month. Inflation in India crossed the Reserve Bank of India’s upper limit of 6 percent for the fourth consecutive month and reached 7.79 percent in April. On May 4, the RBI increased the repo rate by 40 bps, which was the first increase in it after the pandemic.
Prior to this sharp decline, investment in Falling cryptocurrencies grew rapidly due to massive stimulus measures around the world during the pandemic. During the first two months of the pandemic, a stimulus of $10 trillion was pumped into the global economy. Kunal Nandwani, co-founder and CEO, U-Trade Solutions, says, “Part of the incentive money went into investable assets like crypto, stock markets, real estate, and start-ups.
Now that banks are pulling cash out of their economies by buying bonds and rising interest rates, there is a sudden liquidity crisis.” Scared investors started selling their investments, including crypto, threatening the current crisis. Others have put their investments on hold, but at the moment they are not investing any more money. New Delhi-based advertising professional Anand Mahesh had invested Rs 2 lakh in cryptocurrencies such as Ethereum, Polkadot, Solana, and Dogecoin. “I have kept the portfolio I already have,” he says. I am not in a hurry to withdraw money, I used it as a risky investment. It is cyclic. Bitcoin was also down in the past, but then it bounced back.” They still find crypto attractive because of its liquid nature, in which investors get the money immediately after selling.
Nandvani says the future of crypto is bleak. “They may fall further, may not return,” he says. He also says that retail investors who have burnt their fingers may leave their portfolios forever. It may sound harsh, but it will take a long time for the enthusiasm to return to cryptocurrencies.