The crypto sector peaked at nearly $3 trillion in total assets last November but has now fallen to less than $1 trillion. The price of cryptocurrencies, including Bitcoin, can fluctuate due to changes in supply and demand, as well as speculation about price changes.
Why is crypto falling?
Bitcoin was trading at $64,000 per coin in November, but right now investors can get their hands on the cryptocurrency for around $21,000 (£17,000).
And the current crisis shows parallels to the financial crash of 2008, the lasting consequences of which were felt worldwide.
Part of the problem in 2008 was lenders’ inability to meet margin calls — a broker’s requirement for investors to deposit cash or securities to cover potential losses.
READ MORE: Crypto crash: Bitcoin threatens to fall to $10,000
The crypto equivalent emerged as companies announced difficulties following a price drop in their digital assets.
Celsius Network, Babel Finance and Three Arrows Capital shared news about their troubles and the crisis caused by lack of resources and high demand.
This isn’t the first time the cryptocurrency has seen a major drop, but experts say there’s cause for concern this time.
Jason Urban, Co-Head of Trading at Galaxy Digital Holdings Ltd, explained in an interview that the decline is as much about crypto’s success as anything else.
A poorly performing crypto market is known as a crypto winter and is similar to a bear market in stock markets – when asset prices fall for a long period of time.
John Griffin, a finance professor at the University of Texas at Austin, told Bloomberg that part of the problem are interest rates and a lack of trust in leveraged platforms like apps that allow small amounts of capital to access larger markets.
He added: “With interest rates rising, as well as a lack of confidence in leveraged platforms, this deleveraging cycle has the effect of opening faster than these price hikes.”
The cryptocurrency market is now slightly above the $830 billion it was worth before the start of last winter of 2018.
But now the investor spectrum is much broader, attracting individual investors as well as hedge funds.
This means that the future of crypto is becoming increasingly difficult to predict as the market becomes more complex.
The only thing that is certain is that crypto – like most of the world’s finances right now – is going through a dark period.