Reasons for Cryptocurrency Poor Performance
The number of cryptocurrency tokens in the market continues to increase every day. It might be a good thing showing that more people are developing the technology to be used for different reasons or a bad thing as they over saturate the market with other coins. Although this is the case, the market’s most common and expensive cryptocurrency token remains to be Bitcoin. In a market where the competition is stiff and increasing over time, Bitcoin remains the reigning champion over the rest. Bitcoin performance continues to shock people, especially critics who want and wish that Bitcoin and all other cryptocurrency tokens would fail and stop existing entirely. Before explaining how Bitcoin is shocking people, it is essential to explain the situation in the market and some of the challenges that Bitcoin and all other cryptocurrency tokens face. Since the end of the last quarter of 2021, cryptocurrency values have been tanking slowly. It is expected since the value of cryptocurrency is very volatile and may be affected easily by the situation in the market. The problem continued in 2022 and is still affecting the value of cryptocurrency and many blockchains developed over time. Some tokens are way below their highs, which might be good and bad for people depending on their views and involvement with cryptocurrency. It’s good for investors who want a market share since they can afford more tokens for less money. It might be wrong because early investors lose money on their investments as the tokens drop in value.
Many people saw this coming and have written articles on how the pandemic would and is affecting the world’s economy. One of the pandemic’s main effects was that it led to worldwide lockdowns. The many lockdowns people had to go through made many companies close up shop for days, weeks, and in some cases, months. As a result, this affected the supply chain and caused many problems with production. The issues led to price increases due to the rise in demand and decrease in supply. It leads to people having less money to invest and spending more on necessities than investing in cryptocurrency.
The second problem caused by the COVID-19 pandemic is the government needed a lot of funds to cover the many expenses to prevent the spread and treat patients suffering from COVID-19. Many countries borrowed money to cover the cost while others printed more for the same purpose. One side effect of printing money is inflation. Inflation is where money losses value and can buy less every time. Inflation has the same side effect: people have less money to spend on investment as they need more money to spend on their daily needs and expenses. Some investors sold their assets to have more money to cover their costs.
US Dollar Index(DXY)
The third reason and one of the most critical factors leading to cryptocurrency decline is the US Dollar Index or the DXY. This report helps investors decide on the best investment plan for them. According to the most recent DXY report, the United State Dollar ranked highest at a level never seen before in the last 20 years. It means that the Dollar was ranked as the best investment for people and organizations. It was due to other factors that are happening in the world that are causing uncertainty. The side effect is that many investors sell their investments in many fields. Due to the high number of people selling and a few buying, the equilibrium dictates that the commodity price has to go down. It is not the only field affected by cryptocurrency, as investors also sold their stocks, bonds, and gold investments.
Threats of Recession
The fourth factor causing problems for cryptocurrency is the threat of a recession coming soon. Economists and researchers have come up with a forecast for a recession about to hit the United States of America and the entire world. Due to the panic caused by the news, some people are selling their cryptocurrency portfolios to have cash in hand to help them survive the recession.
Decreasing Cryptocurrency Values
As more investors sell their cryptocurrency, the tokens’ value loses over time. As the value drops, more people cash out before the situation worsens. Some people panicked and sold their cryptocurrency portfolio before they lost more money and suffered huge losses.
Although Bitcoin has lost a sizable chunk of its value, the token is performing exceptionally against all odds. With the factors listed above, Bitcoin has been able to hold its value above $36,000 for a while. One of the many cryptocurrency and Bitcoin critics, Peter Schiff, noticed this. He is a Chief economist, a global strategist, and a well-known, self-proclaimed Bitcoin critic. In his recent Tweet, he stated that he was shocked by how Bitcoin has been able to hold its value for so long in this market, as many other cryptocurrency tokens are losing their value. He gave some of the reasons for what is happening: the top Bitcoin holders, in other words, Bitcoin whales, are doing all they can to prop up or hold the price of Bitcoin in the market. Although he claims this to be the reason cryptocurrency has value, other factors prove crypto is one of the possible global currencies in the future. The first reason is that more and more people, institutions, and governments are adopting Bitcoin to serve huge societal roles. Gucci has decided to accept cryptocurrency as a means of payment in the last four weeks, with Bitcoin being on top of the list. Goldman Sachs is offering Bitcoin-backed loans to their clients, and the Central African Republic has legalized Bitcoin as a legal tender for transactions. Banks are offering Bitcoin miners loans to help them cover their expenses showing that they have faith in Bitcoin to grow and get back to its high value. This, combined with reports indicating that over 60% of Bitcoin is held long-term, shows that people have not lost faith in Bitcoin. In a market where other tokens are losing value, more people and organizations offer Bitcoin support and hope it will return to its high value.