Rise and fall of cryptocurrencies; looking at the cryptocurrency crash in 2022

Despite Bitcoin reaching an all-time high of $69,000 (Rs 54.5 lakhs) in November 2021, its overall market capitalisation was around $3 trillion

By Vinay K Mayer

The crypto market is in dire straits. The following is an expert analysis by Vinay K Mayer, Director – Market Research & Consulting @ Asia Research Partners LLP on the crypto crash of 2022 and what we can learn from it.

Cryptocurrency and blockchain technology has been growing in popularity over the past few years, and as a result, the market for these products has exploded. However, this growth has come with some risk – specifically, the risk of investment bubbles bursting. 

In this exclusive article, we’ll take a look at some of the key reasons why the crypto market crashed in 2022. As Director of Market Research & Consulting at Asia Research Partners LLP, Vinay K Mayer has expert insights to share on what caused the crash and how to avoid it in the future.

The Rise of Cryptos

The rise of cryptos in 2017 was a spectacular phenomenon. The value of many cryptocurrencies skyrocketed, reaching all-time highs. Many people saw this as a new opportunity to make money quickly.

However, this boom also led to some serious problems like the issue of hacking, fraud, and frenzy buying. All of these factors contributed to the great crypto-market crash in 2018. However, it’s still not clear what will trigger a new boom in cryptos.

Cryptos and Crash Market: What is Happening?

Investing in crypto was at its peak in 2021. Despite Bitcoin reaching an all-time high of $69,000 (Rs 54.5 lakhs) in November 2021, its overall market capitalization was around $3 trillion. But, the current year 2022 turned out to be not so in favor of it. Cryptos dropped below $2 trillion in January 2022, and after that, it was all downhill except for a slight recovery in April. It was in June that cryptocurrency markets hit a new low of 2022. 

The global crypto market cap has declined below $1 trillion to $977 billion. The global cryptocurrency market cap has fallen by over $2 trillion after touching the $3 trillion mark in November last year. There is a 50% to 70% drop in coin prices since their all-time highs. 

However, other tokens like Dogecoin, Avalanche, and Solana have taken an even bigger hit, with some tokens losing up to 90% of their value. As of today, the total market cap for crypto is $860 billion.

Reasons for Crypto Crash

The crypto market crash of 2022 was a perfect storm of unfortunate circumstances. Global Inflation, the Terra-Luna crash, and rising interest rates by the US Federal Reserve to stabilize inflation were all factors that contributed to the market crash. Additionally, war situations like Russia and Ukraine also added to the perfect storm that decimated the crypto market.

Additionally, the crypto market is often linked with the stock market – so if there’s a downtrend in stocks, you’ll likely see a similar movement in crypto prices. Many factors that affect the stock market also have an impact on cryptocurrencies.

The Russian central bank proposed banning the mining and use of cryptocurrencies in January 2022. This was due to the many financial stability risks that they posed, as well as the potential negative impact on citizens’ well-being. The Russian central bank also noted that regulating crypto could undermine its monetary policy sovereignty. 

Also, India has not yet tabled the crypto bill. It seeks to prohibit all private cryptocurrency usage in the country. The country has also levied a 30% tax on crypto investors and a 1 % TDS on every crypto intra-trader. However, India has not regulated cryptos but won’t legalize them as well.

These challenges have made it difficult for investors to decide whether or not investing in crypto is the right thing to do. Plus, the lack of confidence in the currency due to instability can make it look unattractive to potential investors.

Price as on 03.08.2022:

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What’s Needed Now?

This cryptocurrency is highly volatile and there is no real-time basis for it. There is no legal or regulatory framework in place for this currency yet, so there are a lot of risks involved with investing in it.

The author is director – market research and consulting, Asia Research Partners LLP

Also read: Binance recovers the majority of funds stolen from Curve Finance

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