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The cryptocurrency market is experiencing a crisis of volatility with a massive outflow in recent months, which has cost almost two trillion dollars in capitalization, while experts predict that the most famous currency, Bitcoin, could fall to the threshold of $20,000.
We have not seen the worst. In recent weeks, the main news in the cryptoactive market is that Bitcoin collapsed, stablecoins were not nearly what was expected, and a high-profile company in the industry lost a third of its value. market.
Since the beginning of May, Bitcoin, the most famous cryptocurrency, fell to $25,420, a level it had not seen since December 2020, according to CoinDesk. Although it later stabilized around $30,000, it is still below half the price it reached last November.
Proponents of the cryptocurrency say it could protect its holders against inflation and act as a hedge against a stock market crash. But in neither case has it worked. Annual inflation in the United States hit 8.3% in April, a level last seen in the early 1980s.
This rampant inflation has caused the Federal Reserve to start raising interest rates to try to curb inflation and as a result investors have started selling off risky assets, including stocks and cryptocurrencies. Bitcoin is down 37% so far this year.
But it is not the only one, Ethereum has fallen by 44% and Dogecoin, a cryptocurrency blessed by Tesla CEO Elon Musk, has lost almost half of its value. This dragged other cryptocurrencies known as stableicons.
“It is very likely that Bitcoin will lose more than 30% of its value, in a moderate scenario. It means that it can reach 20 thousand or 21 thousand dollars as a flat. In Ethereum we can see a drop of 40 or 45%”, commented Andrés Jiménez, Founder and CEO of Fridom, a company specialized in Blockchain.
What are stablecoins?
So-called stablecoins are cryptocurrencies designed to hedge against the wild volatility of these digital assets. Its purpose is to try to maintain a constant exchange rate with fiat currencies, for example through a 1:1 peg to the US dollar.
The market capitalization of stablecoins hovers around $170 billion, making them a small part of the global cryptocurrency market, which is currently worth around $1.2 trillion, according to data from CoinMarketCap.
But they have become popular with those who want to invest in such a volatile market but not risk as much. The largest stablecoin is Tether, which has a market cap of around $80 billion, gaining ground from $4.1 billion at the start of 2020.
The second is USD Coin, which has a market cap of $49 billion, according to data from CoinMarketCap. The US Federal Reserve has warned that stablecoins are increasingly being used to facilitate leveraged trading of other cryptocurrencies.
“It is time to reevaluate how our investments are. It is important to analyze in which projects we have our capital and to diversify so that if this happens again in the future, we do not risk all our capital,” Jiménez assured France 24.
Some experts also highlight that stablecoins pose a particular risk to financial stability, for example, if too many people cashed in their stablecoins at once, it would create large imbalances. For its part, the United States Federal Reserve added in its report that a stablecoin sell-off could spread to the traditional financial system by creating stress on these underlying assets.
with AP
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