Billions in losses: Why cryptocurrencies are crashing right now

The Bitcoin and other cryptocurrency collapse has wiped out hundreds of billions of dollars. Risk-taking investors say: Now is the time for a new entry.

Randi Zuckerberg hasn’t stopped singing about cryptocurrencies. In a video released a few days ago, Facebook founder Mark Zuckerberg’s sister sings an ode to the cryptocurrency Ethereum.

But the bitter reality is that the best-known currency, Bitcoin, has lost half of its value. With the other currencies together, more than 200 billion dollars were destroyed by the price slide in the past week alone.

Young people in particular seem to have invested in digital currencies. They report on the losses of the past few days on Twitter, Facebook, TikTok and YouTube. Vlogger Griffin Milks, for example, is 25 and has lost $35,000.

Cryptocurrencies are not an inflation hedge

The reason for the massive price losses are the rising interest rates in the USA, the record inflation rate of more than eight percent and the fear of a recession on the stock markets. So far, the property has been attributed to Bitcoin that it offers a safe haven in the event of inflation. But that is exactly what did not happen. Rather, there seems to be a link between cryptocurrencies and tech stocks. Apple, Facebook and Google have also lost massively in value.

Randy Frederick of financial adviser Charles Schwab says, “A lot of people thought it was an inflation hedge, but there’s very little data to back it up. Not only recently, but over the long term, that hasn’t been the case.” Frederick emphasizes that there is still no solid data basis for a long-term view of Bitcoin. Because the oldest cryptocurrency is just a decade old.

False promise of stability

The TerraUSD – a so-called “stable coin” currency – was also damaging to the reputation of the digital currencies. “Stablecoins” are usually backed by real assets such as the dollar or government bonds. The “stable” should mean: stable.

Means: One TerraUSD should correspond to one US dollar. In fact, the TerraUSD was backed by other cryptocurrencies – now it’s only worth 13 US cents.

The US government wants to regulate more

US politicians are once again alarmed and are planning to regulate the market more closely. Christine Lee, crypto expert at Coindesk, repeats what many investors have not wanted to hear in recent years because the new currencies often only knew one way: up.

She warns: “It’s hurting a lot of people right now and there’s a rude awakening right now. The crypto market is like a roller coaster ride. You have to buckle up and enjoy the ride.”

The somewhat more daring crypto experts advise that now is the time for a new entry.