The month of June has not been great for cryptocurrencies like Bitcoin, as prices have been plummeting. But what’s causing the decline?
WASHINGTON — Those who have invested in cryptocurrency have been watching their savings plummet in 2022, and the trend has continued in June.
For example, as of Tuesday evening, prices had dropped below $23,000 per Bitcoin. One week earlier, this same coin would have been worth more than $31,000. In the past week, Bitcoin has dropped roughly 25 percent.
The year-long trend is similarly perilous. In November 2021, Bitcoin reached a record high, reaching nearly $70,000.
Other coins, like Ethereum, have similarly seen their price drop. As of Tuesday evening, the price was roughly $1,220 per coin. That’s down from its November 2021 high, when the price was over $4,800.
As prices drop, many on social media have been reflecting on their losses. Some are lamenting “the end” of cryptocurrency, while others are pushing patience, assuring that prices will recover.
“A lot of people will quit crypto today,” wrote one user on Twitter.
Amid crashing prices, multiple cryptocurrency platforms have added to the confusion, by partially halting trading.
So, what’s going on with Cryptocurrency? To get a better picture, our team spoke with a trio of financial experts.
- James Angel, Associate Professor and Academic Director of FINRA Certified Regulatory and Compliance Professional Program at Georgetown University
- Hilary J. Allen, Professor of Law at American University’s Washington College of Law
- Robert J. Barbera, Lecturer and Director at the Center for Financial Economics at the Johns Hopkins University
Why Cryptocurrencies are so volatile?
All three of our experts emphasized that these losses are historic, substantial, and across the board in the crypto space.
“It’s falling through the floor is what’s happening,” said Allen. “Prices on all kinds of crypto assets are tanking.”
Our experts pointed out that cryptocurrencies are by their very nature volatile because the value is based solely on what investors believe others will pay for it.
“The prices of cryptos have always been volatile,” said Angel. “They’ll always be volatile because it’s very difficult to figure out the fundamental value of any of these various crypto tokens.”
This volatility makes investments in cryptocurrencies highly speculative and risky, said Barbera.
“It can go to a billion or it can go to a penny,” he said. “And there’s nothing about that price that means anything.”
Why the recent drop?
Our experts said that it’s difficult to single out one reason why the market is selling off Bitcoin at such a drastic level. However, they all are in agreement that the rising interest rates are a big factor.
“The Federal Reserve is increasing interest rates,” said Allen. “Which is tightening the amount of money in the financial system. And so people are abandoning riskier investments in general.”
Barbera said that he believes these rising interest rates will push more investors away from risky assets like cryptocurrencies.
“You do spectacularly well when money’s easy and things are going up,” he said. “And it’s pretty breathtaking in the reverse.”
Angel pointed out that prices are dropping in the stock market as well, as market confidence has been on the decline.
“The prices of all financial markets have been dropping,” he said. “And the actual markets have always been volatile. They’ll always be volatile because their values based on what people expect is going to happen in the future. And nobody really knows what’s going to happen in the future. So the crowd can change its mind in a heartbeat, and usually does.”
What’s happening with Celsius and Binance?
Amid the major cryptocurrency sell-off, some announcements from crypto lenders and exchanges have added to the confusion for some investors.
Celsius, a cryptocurrency lender, announced on Monday that they were “pausing all withdrawals, swaps, and transfers between accounts” due to “extreme market conditions.”
The company said that this action was being taken to “stabilize liquidity and operations while we take steps to preserve and protect assets.”
Angel explained what likely caused this action.
“What they’re basically saying is there’s been a run on the bank,” he said. “We don’t have the ability to honor the withdrawals, and therefore we’re not going to let anybody withdraw.”
Binance, the major cryptocurrency exchange, also had to temporarily pause withdrawals of Bitcoin on Monday due to a “stuck transaction causing a backlog.” Binance reported that this problem was resolved just hours later.