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Bitcoin, like other cryptocurrencies, is having a hard time. It has lost almost 30% of its value since Sunday, June 12, 2022. Several reasons explain this spectacular drop, which is certainly unprecedented, but which makes some investors fear a collapse of the sector.
The fall is impressive. Since Sunday June 12, 2022, Bitcoin has lost almost 30% of its value. A downward curve, similar to that of other cryptocurrencies. For these very volatile financial assets, outside the international monetary system, this type of decline is certainly not the first. But several signs show that a deep and wide-ranging crisis is now affecting this fragile part of the economy. Here are five questions to better understand the ongoing dramatic collapse affecting cryptocurrencies.
1. Is this a historic drop?
Cryptocurrencies are known for their more than fluctuating prices. Already on April 14, 2021, Bitcoin had also unscrewed, losing more than 40% of its record value, $65,000 (around €62,000.00). Therefore, the fall of highly volatile cryptocurrencies is not an unprecedented situation. But now they are experiencing many difficulties, internal to their operation or independent of the sector, that make some investors fear a lasting collapse of the market.
Also read: 8% of the French have already invested in cryptocurrencies, according to a survey
2. Is this a crypto-only crisis?
The cryptocurrency crisis is not unrelated to the situation in global financial markets, explains economist Philippe Herlin, a specialist in these financial assets. “The current context is extremely difficult. World markets, as seen via the CAC40 or the Nasdaq are in decline. Inflation is galloping and the recession is affecting several countries, especially France in the first quarter of 2022.
This partly explains the drop in the value of cryptocurrencies. Investors have less freedom to move, and the desire to invest today is at half-staff.
3. Are there any specific problems in the cryptocurrency community?
Some aspects of this crisis are specific to the cryptocurrency industry. “Currently, the sector is at risk of some markets crashing,” explains Philippe Herlin. This is particularly what happened with the Luna cryptocurrency. It collapsed, and the people who had property there lost everything. We are talking here about deadweight losses, where the owners no longer own anything. “This risks having a profound impact on investor confidence,” adds the economist.
Celsius, a cryptocurrency platform, has stopped all bitcoin withdrawals from its platform, stating “extreme market conditions”. The largest cryptocurrency platform Binance also had to pause all bitcoin withdrawals for several hours. “She announced that it was due to a technical problem. Otherwise, it would be catastrophic for the crypto environment. » In any case, confidence in this highly volatile market should take a hit after these chain announcements.
4. Could the market stabilize?
“The current problem believes Geneviève Bouché, a cybernetician who works on “smart” currencies, is that the value of cryptocurrencies is not based on anything. It is detached from sovereign power, and it is not an object of exchange, but a mathematical product. » In other words, the fall of Bitcoin and other digital currencies cannot be stopped by a monetary regulation mechanism or by the real price of a factory. It is the good will of consumers that sets its course…
“Prices can rise when buyers stop selling their assets and decide to buy others,” adds Philippe Herlin. Always this trust thing, so…
Also read: INTERVIEW. “Cryptocurrencies are not currencies”
5. Is this the end of Bitcoin?
Geneviève Bouché and Philippe Herlin agree on the subject: no, it is not the end of Bitcoin. According to cyber “The future of money is digital”, and current fluctuations do not alter this certainty.
As for the economist, he still believes in Bitcoin, although he believes that the sector must question itself. “Today there will have to be a purge. Some platforms offer cryptocurrency holders annual returns of 10%, 15%, 20%… It seems hard to believe that this is not a Ponzi scheme [montage financier frauduleux qui consiste à rémunérer les investissements des clients essentiellement par les fonds procurés par les nouveaux entrants, NdlR]. But the technology behind these cryptocurrencies is very real and will allow prices to recover value. »