The Bitcoin price has given up almost all of the gains it added during the pandemic cryptocurrency trading craze that took hold last year after losing around 38% of its value since the beginning of May. Having started the month trading at around $48,800 a Bitcoin is now worth around $28,400 and dipped as low as $26,350 earlier today. The market leading digital currency reached a record high of $68,991 last November, almost exactly six months ago.
More than $1 trillion has now been wiped off cryptocurrency markets in recent weeks, wiping out the massive gains recorded last year. Cryptocurrency advocates often argue Bitcoin and other popular digital currencies are a ‘safe haven’ for investors. The idea was they would protect wealth from the fiat currency debasement (manifested by inflation) that can result from central banks like the Fed aggressively money printing as an economic stimulus measure. However, over the past couple of years, they have instead behaved in the same way as higher risk assets like growth stocks.
Source: CoinMarketCap.com
After prices peaked late last year, 2022 has been a rough ride for Bitcoin holders as markets have shunned risk and taken flight into asset classes like defensive equities and commodities. However, many were convinced to move into cryptocurrencies precisely because they are often promoted as an inflation hedge and safety net in the event of a market crash.
In the event, cryptocurrencies like Bitcoin, Ether, Cardano, Solana and the Elon Musk-promoted Dogecoin have seen their exchange values plummet alongside technology stocks. In fact, they have fared even worse. While the tech-centric Nasdaq 100 is down 24% this year, Bitcoin is down almost 40%.
Analysts are now watching closely to see if Bitcoin could be in danger of falling below $20,000, which is seen as a significant psychological level. If it does, there is a significant risk of it plunging much lower after that with the confidence of all but the most ardent believers likely to be shattered.
An event being referred to as a “crypto winter” may not spell the end for cryptocurrencies, just like the dotcom crash of 2000 didn’t spell the end for the digital economy. However, while most technology experts expect the blockchain technology that cryptocurrencies are built on to continue to develop and become important to the real economy, the jury is out on the future of the first generation of unregulated cryptocurrencies.
