May 2022 will forever be dubbed as a black chapter in the history of Digital currencies. Over the middle quarter of the month, the crypto market witnessed a massive decline, losing out over 600 billion USD in just a few days. The colossal fall has probably ushered in a devastating crypto crash, leaving several investors anxious about their crypto investments. The latest crypto crash has further raised serious concerns over the future of the market as well- however, majority of the crypto experts are optimistic about a revival.
So, what led to the recent crypto crash? Well, before getting into the nitty-gritty, let’s have a quick look at some crucial stats that will help to understand the magnitude of the crypto crash.
Crypto Crash 2022 stats highlights
Although Bitcoin reached its second ATH in 2021, clocking in 68,990 USD last November, it plummeted down to a meager 27,194 USD in May 2022
Ethereum has also fallen by 23 percent after the crypto crash
Solana has experienced a huge reduction in market value and is currently down by around 38 percent compared to what it was last year
Stellar, Cardano, and Avalanche have all tanked down to 29 percent, 35 percent, and 39 percent respectively as an aftermath of the recent crypto crash
Terra USD, the unanimous favorite among stable coins, has fallen by 27 percent
Top reasons behind Crypto Crash in 2022
No crash as mammoth as the recent crypto crash could be induced by one single factor. In other words, a line of factors are responsible for the decline of cryptocurrencies over the last month. Reasons behind the mayhem range from geo-political tensions to crash in stock market to spiked interest rates to attack on Terra, and so on.
The post below lists down the major reasons behind the crypto crash this year.
Fall of stock market
What a lot of people are unaware of is that there is a strong correlation between cryptocurrencies and the stock market. The stock scenario experienced a major fall lately and it had an adverse effect on the crypto counterpart as well.
It must be stressed here that cryptocurrencies are particularly similar to tech stocks. So, when there is a dip in the tech stock scene, the crypto market too witnesses a fall. Two major tech stocks that have suffered the most this time are Zoom and Netflix. While the pandemic period saw a dramatic surge in Zoom and Netflix prices, the current post-pandemic new-normal approach has reduced demand for both, resulting in fall in stock prices big time.
However, the latest crypto crash is way more disastrous compared to the fall of the stock scene. In comparison to the 18% plunge witnessed by S&P 500, Bitcoin has experienced a massive 40% drop!
Sudden spike in interest rates
In a bid to keep check on the inflation levels (highest in 40 years), the USA has imposed higher interest rates, thereby creating a plunging effect in the cryptocurrencies market. On the other hand, the Reserve Bank of India has hiked the interest rates in India as well, pushing rupee into freefall. The growing inclination towards equity selloff all over the globe is a major factor behind the latest crypt crash.
Ongoing war between Russia and Ukraine
Even after months, Russia is hell-bent on continuing the war with Ukraine. As a result of the war, prices of Ukrainian exports, say, wheat, have shot up the roof. The supply chain systems are facing troubles big time as well. Ukrainians are fighting for survival and the world at large has no inklings about Russia’s further plans. The crisis has further stopped any scope of growth that already had a huge blow due to the pandemic- and all these factors together have prevented growth for cryptocurrencies as well. With little and almost no possibility for growth, a crypto crash was inevitable.
Attack on TerraUSD stablecoin
The incident was probably the last nail of the coffin, the final push that triggered the recent crypto crash.
Ever since its launch, TerraUSD (UST) stablecoin has been the sweetheart of the crypto world. As stablecoins are always pegged to traditional fiat currencies, these cryptocurrencies are comparatively more resilient and reliable than regular highly volatile coins. But what if the stablecoin itself suffers a fall?
Well, that’s exactly what had happened with TerraUSD last month. A sudden financial attack “depegged” it from USD which led to a massive 55 percent decline in its value. While the market value of UST was 1 USD (similar to US Dollar), it has sunk down to 0.45 USD after the attack. The downfall immediately affected its sister token Terra Luna, resulting in an even bigger plunge of 97%. LUNA is currently at 0.37 USD while it rose up to an admirable $118 just in April (during its ATH).
The downfall of these two stablecoins have eventually led to significant drop in prices of other cryptocurrencies as well, thereby setting the prelude for crypto crash.
It’s to stress here, the attack on TerraUSD and LUNA led to a loss of over 270 billion USD for the cryptocurrencies market which itself stands at a valuation of little over 2.1 trillion USD.
Crypto crash 2022 not same as crypto crisis in 2018
According to some crypto experts, the recent crypto crash last May is way more severe in magnitude compared to the crypto crisis witnessed in the winter of 2018. It’s being shared that the crypto crash in 2022 is more like a blinding storm that will wipe out almost everything in its path. We have already discussed that massive amount the crypto industry has already lost due to the crypto crash in May.
Major reason why the crypto crash in 2022 will always be more severe than the crypto fall in 2018 is because now more numbers of people have forayed into the crypto sector than before. More money is involved and hence the amount of loss will also be greater than what was caused by the plunge in 2018.
What does the future hold for the crypto market?
The mammoth downfall of the recent crypto crash has naturally brought to light questions about the future of cryptocurrencies. Well, honestly, the crypto market seems to be divided in its opinion regarding the upcoming fate of these digital assets after the crypto crash.
Some experts are deeming the crypto crash as the penultimate round of the final phase of the cryptocurrencies. Put simply, they hold limited hope about the future of the market.
However, a larger share of crypto experts is speaking of hope and they are looking forward to a revival of the market after the crypto crash. They have pointed out that the crypto scene has shown the prowess to withstand the crucial stablecoin storm and the market is still full of potential. They have also stressed how elite cryptos, say BTC, have bounced back to solid 30K USD levels after a massive fall. In fact, many other cryptocurrencies too have experienced growth after the crypto crash, such as Dogecoin, Polkadot, Solana, XRP, Cardano, BNB, and more.
Much to the relief of crypto investors and enthusiasts, it won’t be exaggerating to claim that the crypto market is poised for a strong recovery even after such a heart-breaking crypto crash. However, it would take some reasonable time- if the market doesn’t recover by the end of 2022, experts are expecting a healthy revival in the coming 2-3 years.