Bitcoin and cryptocurrency haven’t been around long enough for us to know what’s really going to happen during this latest downswing. But, as far as ‘crypto winters’ go, this isn’t the first one–and perhaps that provides a bit of hope for investors across the market.
Since 2017, there have been five so-called crypto winters (defined as prolonged bearishness for over a month) — three since 2021. The most recent two crashes lasted 14 and 10 weeks and saw Bitcoin lose 45% to 47% of its value.
The main difference this time is that markets across the US and the world are all down simultaneously. Worries rise over global rates and US stocks as they reach bear market status. In the face of such a market, the volatility of cryptocurrencies is even more evident.
So, what would happen if cryptocurrencies were shut down right now or if they reached some catastrophic end?
For that answer, we have to consider a few things.
For the last several years, the draw of Bitcoin (and other cryptos) was the potential for a big payday. We all heard the stories of those who got in at the right time and cashed out their millions just a few short months later. This downward spiral isn’t as painful for those that got in early or when prices were lower. Many jumped on the train later, thinking the sky was the ceiling, who lost money or felt the pressure to jump ship altogether.
Stablecoins, on the other hand, were considered…well, stable. Their value was all but guaranteed to stay exactly the same and drew investors based on that promise. Unfortunately, that stability was shaken to its core after the collapse of TerraUSD in early May.
Interestingly, since then, Bitcoin has been gaining strength from that collapse. That trust in stable coins was lost (or at least damaged severely), and investors have begun returning back to the “coin that started it all.”
In fact, Bitcoin’s dominance in the cryptocurrency market has increased to over 44% of all crypto holdings–a seven-month high, even as its price has decreased.
What does this tell us?
What would a crash look like?
Not too long ago, this question may have seemed ridiculous. Cryptocurrencies (even Bitcoin) can crash to zero. And, if that were to happen, it’s not just those who invested early on that would be affected.
The entire global economy could be thrown into a bit of chaos.
Well, for one, cryptocurrencies are still a very new asset class. They’re not well understood by most people and their value is based entirely on faith. If that faith is shaken, even a little bit, the entire market could come crashing down.
Secondly, cryptocurrencies are incredibly volatile. They’re known for their wild swings and sudden drops. If a significant sell-off were to happen, it could trigger a domino effect that would send prices plummeting.
Also, there are more and more agencies, governments, businesses, and retail services accepting cryptocurrency for payments. A crash could hugely affect their industries and the people they serve.
Fortunately, this last point provides us with reason for optimism.
Some people think that Bitcoin and other cryptocurrencies will not be affected by price crashes. But when you consider that some of the biggest cryptocurrency companies have sponsorship deals with other companies, it is clear that some damage would be done if the prices crashed.
It also means that many big players are invested in the success and prevention of such a catastrophe.
And that’s the biggest reason to be optimistic. As more adoption occurs, it just continues to legitimize cryptocurrencies.
It’s never fun to think of the doomsday scenarios, but sometimes it’s necessary. In the sense of cryptocurrencies, it also serves us all as a great reminder to keep our investment portfolios mixed and remember that no asset should be provided with the power to put you and your finances in a desperate situation.
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