The crypto crash a few weeks ago took the world by surprise, especially given how well the market was doing over the past several months. However, it is not the first major currency crash the finance world has seen, nor will it be the last. The biggest questions on everyone’s lips are why this happened, and what will happen next.
Finding the reason for the sudden decline of major cryptocurrencies, such as Bitcoin, is not easy, and like all other similar scenarios, cannot be caused by just one single event. It is usually the culmination of a wide range of events that produce a domino effect that is as devastating as it is unpredictable.
In early May, the unthinkable happened when Bitcoin dropped to its lowest point in almost two years, and investors the world over work up to headlines screaming “Crash,” “Panic,” and “Meltdown.” Alkesh Shah, who is in charge of crypto and digital assets at Bank of America, was asked by interviewers to give his thoughts on the reason for the crypto crash, and what he had to say was very interesting.
According to Shah, what we witnessed over the past few weeks was far from being the end of the crypto market as many people feared. It was simply a correction that was always likely to happen in a market that had seen very high and disproportionate growth for some time now.
He went on to explain that most of the growth in crypto markets that had been publicly discussed and marveled upon was mainly focused on Altcoins (crypto coins other than Bitcoin). This combined with the shift from currency investment to building and maintaining blockchain ecosystems means that Bitcoin was not actually responsible for all the positive growth in crypto markets for which it was being praised.
The invertible result was the correction that happened in early May, which to everyone who had not been paying attention to the underlying market trends came out looking like a full-on meltdown of the entire Metaverse.
Shah was also very keen to point out that this was not the end of crypto as we know it. The shift to blockchain ecosystems only means that more investment is going into real and usable applications, which have an actual use in sectors, such as supply chain efficiency, and as such are not going away any time soon.
What’s the Next Move for Investors?
There is still a future in cryptocurrency investment, despite the downturn it has been experiencing. In the immediate aftermath of the crash, a lot of investors were licking their wounds, learning from their mistakes, and eager to jump right back onto the horse and continue trading.
This strategy seemed a good one for a little while as people seemed to be ready to move on until the end of May say renewed fears over the future of the crypto market. Altcoins had already been showing signs of weakening as the end of the month approached, and this was compounded by Bitcoin falling to below $30,000.
The first to react was Asia, with South Korea, a traditional crypto stalwart, suddenly stepping back and deciding to take a harder look at the crypto situation. What this actually means regarding its stance on cryptocurrencies is anybody’s guess at this moment, but the situation on the ground remains grim, with the current negative momentum expected to continue unabated for the time being.
It is worth noting that this downturn in fortunes is not isolated to crypto markets alone. Even tech giants felt the sting, with NASDAQ and S&P 500 both falling 0.7% over the same period. All this, it seems, is a result of the renewed fears of a global recession amid mounting concerns over the rise in inflation, as evidenced by a huge shift towards trusted investment options such as Gold and the 10-Year Treasury yield, which both saw significant growth.
Caution seems to be the most prudent move regarding cryptocurrency, with a shift towards blockchain ecosystems being the preferred option for the time being. Only time will tell how long this will last, and how much the global economic uncertainty will affect any growth in the sector.
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