Cryptocurrency is becoming an essential part of this digital era. But the crypto market is so volatile. Crypto bubbles are when the market thinks the current price of cryptocurrency assets is too high compared to what they are considered worthy.
There have been several speculation bubbles in the history of cryptocurrencies. Skeptics have said that they think the whole cryptocurrency market is a speculative bubble.
Members of the Berkshire Hathaway board, like Warren Buffett, and Bill Gates, co-founder of Microsoft and philanthropist, agree with this point of view. There are also several Nobel Prize winners in economics, central bankers, and investors among them.
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What is Crypto?
Cryptocurrencies are a sort of digital currency developed through the use of encryption techniques. Cryptocurrencies are both a means of exchange and a decentralized method of keeping digital records of transactions thanks to their reliance on encryption technology. A cryptocurrency wallet is a piece of software that stores and secures digital currency for its owner.
2021 – 2022 Crypto Bubble and Crash Explained
After reaching their highest point, crypto markets started to fall along with the rest. By the end of 2021, Bitcoin had dropped almost 30% from its peak of $47,686.81, and Ethereum had fallen about 23% to $3,769.70. Most of the time, from the end of January to the end of April, Bitcoin’s price went back and forth between $35,000 and $48,000.
On February 13, 2022, ads for the Super Bowl were bought by Coinbase, FTX, eToro, and Crypto.com. After their ad aired, Coinbase became one of the most downloaded apps.
The U.S. Securities and Exchange Commission (SEC) said at the beginning of April that they would start to regulate crypto agencies. This set the stage for a significant selloff.
- On April 4, Bitmex was the first crypto company to say it was letting go of 25% of its employees.
- On May 3, the Federal Reserve raised interest rates by 0.5%, which caused a significant drop in prices across the market.
- Over eight days, Bitcoin fell 27% to just over $30,000, and Ethereum fell 33.5% to around $1,960. After the news came out, the NASDAQ fell 12.5% over the next five days.
- On May 10, Coinbase said that if they went out of business, people would lose their money because their shares were down nearly 80% from their high point. Later, the CEO said there was no chance of going out of business.
Crypto Crash on June
- On June 12, a crypto exchange called Celsius Network said that all withdrawals and transfers would stop.
- The next day, Bitcoin fell 15% to almost $22,500, and Ethereum fell to $1,200. Along with this, there was a wave of layoffs at other crypto companies like Crypto.com and Coinbase.
- Tron’s algorithmic stablecoin, USDD, stopped being tied to the U.S. Dollar on June 13, 2022.
- On June 17, Bitcoin fell below $20,000 for the first time since December 2020, and Ethereum fell below $1,000 for the first time since January 2021.
- On June 17, Babel Finance, a Hong Kong-based crypto lender, stopped letting people take out their money.
- On June 23, CoinFlex stopped withdrawals after a counterparty later revealed to be Roger Ver, ran out of money and didn’t pay back a $47 million stablecoin margin call.
- A cryptocurrency broker, Voyager Digital, gave a $670 million loan to a cryptocurrency hedge fund, Three Arrows Capital, on June 27. However, Three Arrows Capital did not pay back the loan.
- On June 30, FTX said it could buy BlockFi, a crypto company that had fired 20% of its staff.
- By the end of June, as their money started to run out, many crypto agencies began to rethink how they spent.
Three Arrows Capital filed for bankruptcy on July 2.
The Singapore-based cryptocurrency lender Vauld, which Coinbase and Peter Thiel back, stopped trading and withdrawals on its platform on July 4.
- On July 5, eToro ended its deal with the Special-purpose acquisition company (SPAC) and fired 6% of its employees.
- On July 5, Voyager Digital, a company that sells cryptocurrency, filed for Chapter 11 bankruptcy.
- On July 6, Genesis Trading said it was at risk because of the bankruptcy of Three Arrows Capital.
- On July 8, Blockchain.com told its shareholders that loans it gave to Three Arrows Capital could cost it up to $270 million.
- On July 11, it was reported that crypto miners in Texas had temporarily stopped working because a heat wave was putting a lot of stress on the power grid.
- The Financial Stability Board (FSB) said on July 11 that cryptocurrencies “must be subject to effective regulation and oversight proportional to the risks they pose.”
- On July 12, lawyers for Three Arrows Capital creditors told the U.S. Bankruptcy Court in Southern New York that they didn’t know where the company’s founders were.
- On July 14, Celsius Network said it was going out of business.
Crypto Bubble and Crash
- SkyBridge Capital put a stop to withdrawals on July 19.
- Vauld filed for protection from creditors on July 20. This is the same as filing for bankruptcy in the U.S.
- On July 20, Zipmex, a Southeast Asian exchange, stopped people from taking out money.
- On July 25, the SEC began looking into whether or not Coinbase had lied to its customers. The next day, their stock dropped by 21% because of this.
- On August 8, Hodlnaut, a company in Singapore that lets people borrow and lend cryptocurrency, stopped withdrawals.
- Terra-Luna Falls Apart
- Terra (blockchain) is the main article about this topic.
- The stablecoin TerraUSD dropped to 10 U.S. cents in May 2022.
- This was supposed to be tied to the U.S. dollar through a complicated algorithmic relationship with its support coin, Luna.
- The loss of the peg caused Luna to drop from its high of $119.51 to almost nothing. In a week, the market lost $45 billion because of the crash.
- On May 25, a plan was approved to reissue a new Luna cryptocurrency and to stop using the UST stablecoin, which had lost value.
- The value of the new Luna coin dropped in the first few days it was on exchanges.
After Terra-Luna went down, another algorithmic stablecoin, DEI, stopped being tied to the dollar and started going down.
The giants of the Crypto market create Crypto Bubble, and the crypto market moves based on news and transaction. So be cautious while investing in crypto markets.
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