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Bitcoin Crash Proves No Asset Immune to Economic Fluctuations

© AP Photo / Dado RuvicA representation of virtual currency Bitcoin is seen in front of a stock graph in this illustration taken January 8, 2021
A representation of virtual currency Bitcoin is seen in front of a stock graph in this illustration taken January 8, 2021 - Sputnik International, 1920, 18.05.2022
ST.PETERSBURG (Sputnik) - The continuous devaluation of cryptocurrencies was likely the result of a tangle of factors, from worldwide inflation to financial market volatility, that has prompted spooked investors to choose exiting risk assets in anticipation of a recession, international experts told Sputnik.
All major cryptocurrencies had a landslide fall last week. Bitcoin rose only near $30,000 this past Monday after plummeting below $27,000 last Thursday, its lowest since December 2020.
"The crash was caused, in my opinion, primarily by the FEDs decisions regarding interest rates and the US and Europe's response to the situation in Europe; both combined have caused lots of uncertainty in the markets and pain in average investors who have begun to experience harsh inflation, part due to these policies, part due to the policies during the last few years during the covid-19 pandemic," Zachary Greene, who runs crypto-investing and finance website GreeneryFinancial.com, said.

Bubble Bursting?

Following the unexpected crash, some have come to believe we are witnessing the cryptocurrency bubble bursting, not unlike the dot-com crisis of the late 1990s caused by excessive speculation in internet-related businesses. The experts, however, are hesitant to call recent market movements an anomaly or burst bubble.
"Is it a bubble? I don’t think so. It’s definitely a large market correction. I’ve seen my own portfolio fall to half what it was a month ago. But that still doesn’t make it a bubble. There’s been ups and downs before - but I actually think this is a good thing. It drives off speculative buyers and the true believers HODL (community meme of the misspelling of 'HOLD') - or maybe even 'buy the dip,'" Christopher Gulczynski, a co-founder of Tinder and an expert in crypto, said.
Despite the fact that cryptocurrencies were designed to exist outside the stock market to protect them from inflation and drastic policy changes, as well as have them free from government control and a central authority, the reality is now proving different. The current decline shows that cryptocurrencies are not unsusceptible to external factors and changes on the international scene.
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"Whenever there is a dip in tech stocks, it affects cryptocurrencies as well. Then there is the volatility part of this currency as well. The number of people investing in crypto fluctuates a lot and this is where we might find an answer," Andreas Grant, a tech expert and entrepreneur, said.
He does not expect these dips and crashes to slow down any time soon, saying that every time the price of cryptocurrencies goes down, new investors enter the market in a bid to get rich.
"However, as the number of crypto users rises, it can be a saving grace for cryptocurrencies in the long run," Grant said.

Short-Term and Long-Term Prospects

Experts share the opinion that the short-term prospects of the cryptomarket would depend heavily on the macroeconomic situation: if more sanctions against Russia are adopted, this will boost inflation and global recession, as the Federal Reserve System takes more drastic measures that hurt both conventional and crypto capitals.
Despite the short-term pain, however, experts agree that in the long-term the crypto industry would continue to rally supporters, as it would become clearer that centralized monetary frameworks are becoming increasingly unstable and vulnerable to manipulation.
The long-term confidence appears rooted in the blockchain technology, which is used to register and run crypto transactions. Countless companies and start-ups have chosen to built on top of it to create a rich ecosystem of platforms, Gulczynski said, but warned against treating blockchain as a get-rich-quick stock market.
"People are speculating on the value of the native tokens, such as bitcoin, ether, etc. but the blockchain is here to stay," he said.

Where Do We Go From Here?

While exact predictions are impossible, the experts expect that cryptocurrencies would continue steadily to hit new lows in coming months.
"If you're not directly using cryptocurrency, don't invest in it. For example, if you're not using it for daily transactions, mining, or building a business using cryptocurrency, now's not the time to buy. Cryptocurrency is expected to go down by at least another 50 percent before the end of the recession, so buying now will show a significant loss in your portfolio," Stewart Dunlop, a financial advisor and the founder of the LinkBuilder blog, said.
At the same time, Dunlop advised against selling crypto assets that were acquired at a low rate.
"When Bitcoin first started, it was only a few dollars to purchase. If you're in that boat, hold on to it. If you bought during the craze, it's time to sell," he said.
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Mark Grabowski, an associate professor at the Adelphi University in New York and the author of the book Cryptocurrencies: A Primer on Digital Money, believes blockchain is still a nascent technology driven mostly by hype and speculation.
"I don’t think the Google of cryptocurrency exists yet. But eventually the prices will get so low that the upside becomes too large for greed not to take over. Rinse and repeat. The next Bitcoin halving is in April 2024, so I think the market will start heating up again around then or soon after," Grabowski said.
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