Why cryptocurrencies continue to drop at alarming rates

Why cryptocurrencies continue to drop at alarming rates
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Bitcoin, the world’s largest cryptocurrency, took a brutal hit on Monday and dropped more than 6% - falling below $27,000 - and continues to drop on Thursday. The cryptocurrency has reached its lowest point since December 2020.

Other cryptocurrencies have seen similar drops in value, as Ether lost more than 12% and BNB saw a large decrease too. Experts warn of a “crypto winter”, in which the sector’s growth will come to a grinding halt.

What's the problem?

Investors are shying away from risky investments as interest rates are rising, therefore letting go of the unpredictable digital currency.

While crypto was said to be resistant to inflation and crises due to its independence from governments and banks, the last couple of years have proven the opposite. For instance, Bitcoin fell by 57% when the Covid-19 pandemic destroyed global markets in March 2020, after which both stock markets and cryptocurrencies recovered at a staggering rate.

As inflation is currently dominating global economies, central banks have raised interest rates. For investors looking for a safe place to store their wealth, crypto might feel too risky due to its volatile nature.

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Other worries concern regulation and security breaches, as scepticism has devalued crypto over recent years. One example is China’s crackdown on bitcoin mining in 2021, which caused the cryptocurrency to crash from $65,000 in April to $35,000 in June.

Certain experts also believe that the recent struggles of one of the largest so-called stable coins, TerraUSD, has played a role in the most recent Bitcoin crash. TerraUSD is a token that is designed to always be worth $1, but it recently sank below $0,70.

It is yet to be seen whether the crypto slide will continue, as some believe panicking investors will make things worse, while others believe the dip is only a natural part of its overall growth pattern.

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