Crypto Market at Sheer drop! Is it Worth Investing in Cryptocurrencies?

Is it Right time to Invest in Cryptocurrencies

What are Cryptocurrencies?

A virtual currency that uses a cryptographic payment mechanism that does not rely on banks for transaction verification. It’s a peer-to-peer system that allows anyone to make and receive payments from anywhere.

Cryptocurrency payments exist solely as digital entries to an online database identifying specific transactions, rather than as tangible money transferred around and exchanged in the real world. The transactions that you make with cryptocurrency funds are recorded on the blockchain ledger. Digital wallets are used to store cryptocurrency.

The moniker “cryptocurrency” comes from the fact that it utilizes encryption to confirm transactions. This means that storing and sending cryptocurrency data within wallets as well as to public ledgers requires complex coding. Encryption’s goal is to ensure security and safety.

Bitcoin, the first cryptocurrency, was created in 2009 and is still the most well-known today. Much of the fascination with cryptocurrencies stems from the desire to exchange for gain, with speculators driving prices high at times.

For more information about โ€œCryptocurrenciesโ€, CLICK HERE!

Volatility in the Crypto Market!

The crypto market has lost around 2/3rd of its value from its November 2021 peak. Its overall market capitalization has plummeted to under $1 trillion, down from roughly $3 trillion market capitalization during its peak days, owing to the current crypto market devastation.

Bitcoin has fallen to as low as $18,000 from around $69,000 in less than 8 months, amidst a larger selloff in risk assets as investors grow increasingly certain that the Federal Reserve will revert to its ultra-accommodative policy settings.

The collapse has impacted everything offered by the crypto ecosystem, from Bitcoin and Ethereum to publicly traded Alt cryptocurrencies. Thus, wiping down more than $2 trillion of investors’ wealth all around the globe.

But why did this happen? 

Why did Crypto crash now?

Nothing happens without a reason. Iโ€™m surprised that Iโ€™m saying this statement.

We always thought that in cryptocurrencies, anything could happen and none knows the reason. But, that is far from the truth.

Luna-Terra unexpected crash!

It all began after the Luna-Terra debacle. It was a major event that had far-reaching ramifications for not only its investors but the whole crypto industry. Before the catastrophe, many investors had their whole life savings invested in Terra currency, a stablecoin with a market capitalization of nearly $18 billion.

To know more about โ€œStablecoinโ€, CLICK HERE!

Stablecoins are designed to be valued the same as the US dollar or another fiat currency, and they exist largely so that crypto investors may quickly get in and out of the fiat currency without requiring the approval of a third party (in this case, a bank). 

Stablecoins like Tether (USDT), USD Coin (USDC), and Binance USD (BUSD) are just a few examples of stablecoins on the market. Three of the aforementioned stablecoins are tied to the central bank’s USD. 

These organizations have a treasury of dollars in the form of cash reserves or deposit certificates that back each coin to one dollar.

With Luna losing 99.9% of its value, Terraform Labs (the firm behind Terra) devised a strategy to sell all of their Bitcoin holdings in order to restore the $1 peg, which they ultimately failed to achieve. As a result, the crypto market lost more than $40 billion.

Well, there could be many reasons, but I have come up with the top 3. They are as follows.

Tampering by the Fed:

When Fed says that itโ€™ll reduce the bond purchase and thus limit its money supply. That means every asset class would get lesser money than it used to.

The US Federal Reserve has agreed to raise interest rates in order to reduce inflation. According to a Wall Street Journal story, the Fed will pursue an aggressive strategy to raise debt prices, restrict spending, and contain record-high inflation.ย 

The rapid rise in interest rates is widely seen as a leading indicator of an impending recession.

Following the announcement, both the stock market and the crypto market plummeted; investors lost faith and began selling their digital assets, resulting in a crypto market carnage.

When Fed decides to raise interest rates. Thatโ€™ll bring in 2 faced results.

  1. Investors who were reluctant to invest in bonds will find the high yield bonds favorable and some if not most will shift out of risky assets and choose bond Investing.
  2. Amongst the Investors, most weak hands will prefer Bond and Gold over risky assets. This shift from a risky asset class to a non-risk asset will bring a crash or correction in the Crypto & Equity market. 

Regulatory changes:

We always knew this day was coming.

We knew that there would be some regulations that could dent the crypto market. And that seems probable for now.

Countries such as China, Russia, Qatar, Turkey, Bangladesh, and Egypt, put together some 40 odd countries that have already banned or restricted the use of cryptocurrencies altogether. The list may not end here!

Imagine if tomorrow India comes up with a blanket ban on cryptocurrencies. This could restrict a third of the world population from access to the crypto world. 

If not banned, weโ€™ll at least have regulations! 

In India, Cryptos may be put under SEBI. or similar organizations that would put regulations and maybe ban a few dozens of altcoins & all privately held cryptos!

Is it time to Invest in Cryptocurrency

Central Banks Digital Currency:

If owning a digital currency with optimum privacy & the ability to safeguard wealth is your goal, it doesn’t matter who issued the coin right? Then, why not hold the one issued by the Central Bank

It is said that โ€œUS lawmakers are in the process to introduce a bill to prohibit Fed from issuing Central Bank Digital Currency directly to Consumerโ€. It is important that the Fed should not have the power to offer retail bank accounts.ย 

If CBDC is transparent and maintained privately, then that will give a head-on-head competition to all the listed Cryptocurrencies.

Conclusion:

Cryptocurrencies have had a wild journey in 2022. The cryptocurrency market dipped in January before rebounding in February. As governments around the world try to figure out how to regulate cryptos, they have been looking closely at the global crypto industry.

The crypto law has yet to be introduced in India. In India, the bill aims to outlaw all private cryptocurrencies. The country has also imposed a 30% tax on cryptocurrency investors and a 1% TDS on all crypto intra-traders. India currently does not regulate cryptos and will not legalize them either.

Russia’s central bank recommended prohibiting the usage and mining of cryptocurrencies on Russian soil in January 2022, citing concerns about financial stability, residents’ well-being, and the country’s monetary policy sovereignty as justifications. Regulatory difficulties have made it tough for investors to decide whether or not to invest in cryptocurrency.

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