The markets have been spooked by recent news that cryptocurrency Bitcoin and Ethereum have crashed and recovered. Both have lost more than 50% of their value since their peak in November 2017. This is due to speculative appetite dwindling against the backdrop of rising interest rates, inflation and recession risks. However, the cryptocurrency market has experienced similar dips before and has recovered from them in the past. In fact, Ethereum plunged 80% from its trough in 2018 and then rallied to new records within the following 36 months.
While Bitcoin and Ethereum have recovered from past crashes, it is important to remember that these currencies have had a large impact on the global economy. As more people and institutions hold these digital currencies, they have a much broader impact than smaller digital currencies. For example, Bitcoin (BTC) fell by more than 50% on Thursday before recovering slightly. As a result, the Nasdaq (IXIC) index fell by 2.5% on Monday before New York trading. The price of Bitcoin has been closely correlated to that of Nasdaq since the start of the year, which heavily weighs technology stocks. On the other hand, Ethereum (ETH) has plummeted 30% over the last week.
There are many risks associated with investing in cryptocurrency. The most common is the potential for a crash in value. Because the price of bitcoin can drop drastically overnight, it is important to remember that cryptocurrency is still a volatile asset. It has seen ups and downs on a daily basis. Its prices have reached a new record high just a few months ago, but they have also crashed dramatically since then. Several other cryptocurrencies have experienced similar problems.
The crypto sector relies heavily on innovations shared among its participants. The blockchain, a distributed ledger that tracks ownership of digital assets, is one of those innovations. This ensures that no single entity can control the crypto market. And because the blockchain is decentralised, it does not have a centralised body to impose rules and regulations.
As a result, the crypto industry is far more volatile than the broader stock market. The greatest losses were experienced during the internet bubble burst in 2000, the great financial crisis, and COVID. However, the cryptocurrency industry has historically rebounded from major crashes. The biggest exchange, Coinbase, is currently down 80%. While Bitcoin and Ethereum have been the most stable, many other cryptocurrencies have gone extinct and exchanges have declared bankruptcy.
While the cryptocurrency markets have a long history of ups and downs, there is a general appetite for the crypto world that remains. As a result, new cryptos are launched every day. Even football teams are getting involved with crypto. The Man City football team, for instance, partnered with cryptocurrency exchange OKX and announced that their shirts will be emblazoned with the OKX logo.