Since November last year, the fall of bitcoin and altcoins has continued. The recent crash of FTX has only reinforced the bearish trend in the cryptocurrency market. Sam Bankman-Fried’s miscalculations hit the exchange rate of BTC, Ethereum, Solana, and other cryptocurrencies. But the question is: is the fall short-lived? Or has crypto been sentenced to death?
In this article, we will talk about the reasons for the decline of the cryptosphere and try to determine its prospects.
According to the Web Coin Market: In 2022, the cryptocurrency market is waging war on several fronts at once.
The first front is the global energy crisis. Because of it, electricity prices jumped, which increased the costs of miners. In addition, the high difficulty of mining requires much more energy to produce new blocks than before, which again hits the wallet of the miners.
The second is the policy of the US Federal Reserve System. Taking into account high inflation, it repeatedly raised the key rate, which made additional investments unprofitable and forced the “whales” to leave the crypto market. Their bearishness is indicated, in particular, by the fall in Bitcoin reserves.
The third is state calls. China has banned any cryptocurrency transactions, India has introduced a 30 percent tax on income from cryptocurrency transactions, the EU is preparing to ban mining, and Russia plans to legalize cryptocurrency with many restrictions.
The fourth is the mistakes of cryptocurrency companies. First of all, we must remember the story of the algorithmic stablecoin TerraUSD (UST), whose collapse seriously undermined the credibility of the crypto industry. The collapse of the Celsius Network, Voyager Digital, and Three Arrows Capital also affected the fall of the crypto market.
The publication of information about the assets of Alameda Research and the subsequent hack of the FTX exchange, which ended in its bankruptcy, went sideways for the entire crypto industry. Funds on FTX came from both ordinary users and institutional players, so the Bankman-Fried errors incur significant reputational costs for the entire cryptosphere.
Users began to massively transfer funds to decentralized platforms that were guaranteed not to be controlled by one person, as was the case with FTX. But it’s too early to rejoice: in October, the DeFi sector broke the record for the number of crypto thefts. 2022 as a whole is also approaching record levels. Remember Ronin and Mango Markets? And there were many more such cases. And no one guarantees that this figure will decrease in the future.
In fact, the FTX bankruptcy became a problem of the same magnitude as the Terra (LUNA) ecosystem crisis, as it pushed the crypto market further down. Circle co-founder Jeremy Allaire compared the FTX crisis to the collapse of Lehman Brothers, which contributed to the 2008 financial and economic crisis. The head of the Binance exchange, Changpeng Zhao, announced a “cascading” crisis, during which many other companies may close.
Experts at the Coinbase exchange argue that the liquidity crisis generated by the collapse of FTX will lead to the continuation of the crypto winter. The dominance of stablecoins in the crypto market has reportedly jumped to 18%. This indicates the uncertainty of investors in cryptocurrencies and the desire to hedge against a stablecoin pegged to the dollar.
At the same time, the fall of the crypto market occurs against the backdrop of the rise of the stock market, which will now become a more attractive object for investment.
Bitcoin and altcoin price forecast
In the coming months, you should definitely not expect a reversal on the cryptocurrency charts. The future of bitcoin, for example, will continue to be murky: there is still potential for a fall to the massive $10,000 support and resistance level.
And yet, it is rather naive to believe that we are seeing the decline of the crypto industry. The opportunities that it provides have become the next step in the technological and social development of human civilization. Blockchain technologies have changed our lives and they will continue to develop.