Why has crypto dropped

Why cryptocurrencies are down today

Bitcoin has fallen more than 50% from its all-time highs. The plunge of the world's largest cryptocurrency by capitalization has taken all the attention of this bloodletting that has worsened in May. However, the worst part is being borne by a whole series of cryptocurrencies that are in bitcoin's shadow and are plummeting more than 80% from their highs. The altcoins are being 'swept away' in this new scenario facing the cryptocurrency market: risk-off, monetary tightening and loss of confidence in some cryptoassets.

It's a complete sea of red for almost the entire crypto universe, with altcoins like ether, solana and avalanche taking a beating, claim from Bloomberg. Traders are partially perplexed. For ethereum, signs of lack of demand have been building up for quite some time, even if all eyes have been focused on bitcoin. The collapse of TerraUSD The impact of the collapse of TerraUSD, a blockchain ecosystem that kicked off one of the biggest experiments in decentralized finance (a stablecoin powered by an algorithm), has caused wild contagion this month in an already bearish market, even putting tether, the largest stablecoin on the market, under pressure. The collapse of this cryptocurrency has been the final straw for a market that had already been suffering from investor harassment.

Crypto market plummets

Jon Snow was told that winter was coming. But for many cryptocurrency investors, it has already arrived. The crypto universe is sinking at a frightening speed. Most investors are selling at a loss. Others are not even being able to sell their assets due to the collapse caused by the massive sell-off.

The cryptocurrency crash has affected almost all tokens and has even brought down some stablecoins. One of these is TerraUSD, which should always be worth $1 and has fallen to a low of 30 cents. LUNA, its sister stablecoin, has lost 99% of its value: from almost $120 to less than $1.

Desperation at having lost everythingThis situation has caused many 'cryptobros', which is how enthusiasts are known - often sarcastically - to have lost almost all their money. So a featured post on U/Terraluna, a Reddit forum dedicated to the LUNA cryptocurrency, has been filled with the frustration and despair of these people.

Binance

It was Tuesday afternoon, a day before bitcoin hit an 18-month low. Elisa Caletti escaped the lashing rain outside by entering the Bitcoin Embassy, located in Mexico City's Roma Norte. The "embassy" (a crypto-themed bar, not a diplomatic institution) is home to one of the few bitcoin-taking ATMs in the area. Despite his plunge, Caletti didn't go there to empty his bitcoin accounts: he was hodling.

"There are always crashes," Caletti told Rest of World. "It's not always going to be all the way up." He used the ATM to withdraw some cash and left the bar to wait for a car. He stood next to a chalkboard with a drawing of an astronaut stamped with the bitcoin symbol and riding a rocket, Dr. Strangelove style. Underneath, a phrase in English: "See you in the moon".

Omid Malekan, a crypto expert and professor at Columbia Business School, said the hysteria over the drop from the U.S. ignores the diversity of realities across the globe, where people do not have access to stable banking systems or U.S. dollars. "When pundits, acedemics and people like Warren Buffett in the U.S. criticize crypto and bitcoin, they are generally coming from a very privileged position, for not finding a more appropriate term."

What experts say about bitcoin

In January 2022, analysis by digital asset firm BitOoda, stated that miners with older machinery would cease to be profitable when bitcoin would touch $36,700 (23% of all miners) and that practically all of them would be threatened with a price close to $20,000 for bitcoin. This weekend the reigning cryptocurrency has traded below $18,000 and is currently just above $21,000.

The other big problem is that many of these miners have not sold their coins for some time. Like most investors, the miners were confident that the price of bitcoin would continue to rise indefinitely, so they avoided selling the tokens they received for their efforts in the hope of making a higher profit. However, operating costs - light, salaries - required income in dollars. The solution was to borrow from crypto finance firms with their bitcoins as collateral.

Alberto Fernández, professor of the IEB's Specialized Program in Blockchain and Digital Innovation, defends that, despite everything, "the profitability of Bitcoin miners is affected" but believes that "companies in which Bitcoin is mined more efficiently" have a good boost "due to the elimination of competition, and therefore a greater sharing of the total production. For example, companies with access to low-cost or even near-zero cost energy such as biogas mines" may be surviving and even improving their situation.