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CALLED CRYPTO WINTER: Bitcoin’s price has sunk dramatically and stubbornly stuck around and under a $20,000 per coin price–after it’s high came within touching distance of $70,000. Etherium and NFTs have also taken similar devaluations.
The consequences of the crypto crash of 2022 echo the crypto crash of 2018, but only 10x worse. Some have blamed the lack of regulations as the reason these currencies have regular unexpected catastrophes. Real people have lost millions of dollars in personal net worth, overnight. But it is the unregulated aspect of the crypto market that attracts many investors. Crypto experts have said for years that cryptocurrencies were the appropriate hedge against governmental currencies during volatile times. Well, that has been proven to be wrong.
In the last few months, very few assets on this planet have lost more value than cryptocurrencies, with the most prized coin in the realm – BITCOIN – also being a big loser!
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Let’s review a few facts about Cryptocurrencies.
The Down Side.
Some are saying Cryptocurrencies are based on the greater-fool-theory: “Someone tomorrow will buy your asset, which has no intrinsic value, for a higher price than you paid for it.” Ultimately, when there is no place to sell the asset and no willing buyers can be found, the last people holding the asset–become the losers.
Crypto investing is speculation and it is possible to lose all of your money!
The Up Side.
The argument for Cryptocurrency is… (and it’s not a bad argument)… at some point, there will be a finite amount of Bitcoin in existence and everybody in the world will eventually embrace it. Meaning Bitcoin’s acceptance and use will become widespread across the globe and due to scarcity, the value of Bitcoin will rise as people want to own and use this now stable currency. The supply will be limited causing the price of Bitcoin to keep going higher and higher. The early investors/adopters, who held on, will become fabulously rich as the value of Bitcoin rises.
This is the same system that gold, silver, platinum, and diamonds operate under. We assign a value to these minerals, even though they are actually free to whoever finds them in nature. They literally are dug out of the earth. It is only their scarcity that gives these minerals value. Bitcoin has been called a digital version of gold, and it is possible that once bitcoin reaches its limited and finite supply, it will become highly sought-after as a storage of value.
It is possible Bitcoin could still live up to its hype. In 2021 when Crypto was hot, the word on the street was, Bitcoin could keep going up in value until it first peaked at $100,000, then in the distant future, it could top a one million dollars valuation. This story is not over yet.
What Is Bitcoin?
Bitcoin is a cryptocurrency, a virtual currency designed to act as a value exchange (money) and a form of payment for goods and services. A cryptocurrency is outside the control of any one person, group, government, company, or entity, thus removing the need for third-party involvement (banks) in financial transactions.
Bitcoins are created by blockchain miners, who are awarded the coins they create in exchange for the time, effort, equipment, and energy expenses it takes to verify the digital transactions needed to create each one. Bitcoin can be purchased by anyone at online cryptocurrency exchanges.
“Even in this downturn, Bitcoin is currently doing exactly what it was designed to do. You can use it to conduct peer-to-peer value transactions, which will circumvent all third-party control, ie: central banks.
Bitcoin and Ethereum (the two top coins) both peaked in value on November 7 of 2021, and by June of 2022 both had gone down by up to 70% from that high valuation.
FACT: Cryptos’ value soared into the stratosphere during the pandemic, after stimulus checks went out and people had that extra money to spend. During the past several years the money supply has tripled because the United State Government has been printing money and keeping interest rates low (for quite a while interest rates were at 0%), and add to that, tons of government stimulus spending on the US economy. Because of the low interest rates, homeowners refinanced their mortgages, pulling out money, giving consumers even more cash to spend. In conclusion, crypto’s recent high valuations appear to have had a close correlation with the reality that consumers had easy access to money.
Today, with interest rates quickly on the rise, and other inflation-reducing policies now in place… the money supply is contracting in the USA, for the first time since the banking crisis of 2008.
The price of cryptocurrencies went vertical during the pandemic and remember in physics, the angle of ascent is mirrored by the angle of descent. Because the prices of the coins went straight up and now under duress, the prices have come quickly down at the same angle. This is called a “bubble” and the bubble has popped.
Many whales, large holders of crypto, have sold their coins causing the prices to crash. More than 80,000 other Bitcoin investors have had their millionaire status revoked in the past few months due to this crypto market downturn. There is a silver lining around this mess because many large holders have sold their crypto… the price of entry into Bitcoin is again lower and the actual number of coin owners is expanding.
In 2017 the price of Bitcoin rose quickly, only to have a sell-off in 2018. Doom and gloom were predicted at that time. As we witnessed, the price of Bitcoin then went on top $67,000 each. Recently the value dropped down to under $17,000 each and it could go even lower. Cryptocurrency has proven to be a boom or bust type of investment.
Many of America’s wealthiest families made their money on speculation, BUT if you bet your farm on Crypto, you could be very, very sorry. ONLY invest money you can afford to lose. This is gambling, win or lose, never risk the family farm on chance.
Most people recognize the concept of blockchain security is the most positive revelation that has come with this disruption in the financial market. Embrace it, because it should grow and mature as our technologies continually improve.
All of this worry of crypto, blockchain, NFTs, and government-issued money makes one think back to the turn of the 19th century when many people’s biggest worry was the global population explosion. A huge question at that time was… “How on earth are we going to be able to breed horses, fast enough, to accommodate the huge numbers that will be needed as the world population grows so quickly?” The best and brightest minds predicted a huge horse crisis was on the horizon.
WELL guess what? The problem simply vanished, because technology and the automobile eliminated mankind’s need for horses completely.
We never know the future, and what future technologies will bring to our world. Blockchain is definitely here to stay, and as things stand now, Bitcoin and Etherium will most likely survive and possibly thrive, with the caveat that technology, circumstances, and the marketplace are guaranteed to change.
Final Question: What is your risk tolerance and what do you want to do? There are pros, cons, risks, and rewards in cryptocurrency investing, plus you must mix those with an unknown future–now you have the same dilemma every human has had to make, a decision to embrace the situation head-on, or run away from it.
It’s what keeps life interesting!
Some experts have predicted this crypto winter might not begin to thaw for a while yet.
