Crypto-crash: why did it happen?
A few weeks ago, an earthquake shook the field of cryptocurrencies: the main ones fell to figures not seen since the end of 2020 and some of the most promising ones went to practically zero. Of course, it is not an exclusive phenomenon of cryptocurrencies, it occurs in a context of recession in the global economy. However, it is a worrying phenomenon so let’s dive into the matter.
As usual in the world of finance, to explain this sharp drop in so many digital currencies, it is not enough to cite a single reason. What has happened is a mixture of diverse factors that have precipitated the depreciation. Javier Pastor, in Xataka explains that “UST was not backed by dollars, but theoretically it maintained its link with that fiat currency through its connection with another cryptocurrency called LUNA and which is the token of the Terra network. On April 5th, everything was going well for LUNA, which reached its all-time high of $116. The fall of the markets —stock and cryptocurrency— caused a massive sale of these tokens, which have ended up losing 99% of their value. Right now it’s worth $0.26.
Víctor Millán, for his part, writing for Hipertextual, points to the energy crisis and inflation. “Despite the fact that the most optimistic have proposed bitcoin and other cryptocurrencies as a refuge value against inflation and the crisis; the current one, which came from afar and has been increased by the war in Ukraine, has shown that it is far from it. (…) When the coronavirus pandemic crushed world markets in March 2020, Bitcoin also fell, with a decline of 57%”.
These dilemmas are essential in understanding this particular crash. However, José Antonio Bravo, tax advisor and expert in cryptocurrencies, believes that investments still depend a lot on the situation in the United States and, in statements to Cinco Días, explains that “to deal with the pandemic, the State has given several stimulus checks of about 1,000 dollars to practically every American. Many people used it to buy stocks and crypto assets, since prices were low at the time.” However, as the economy has worsened, “that has led to cryptocurrency positions being liquidated and a price decline occurring.”