Whether you care or don't give a flinch, you must have probably observed that cryptocurrency is having a turbulent time and has been like that for a while now. Plummeting prices and lost life savings confirmed for many that the blockchain dream was too good to be true – and it may currently struggle to hit past highs.
But first, let's face reality; as I mentioned in our past weekly digest, recent high-profile financial meltdowns at Bitcoin, Celsius, and Terraform Labs have helped wipe out hundreds of billions in market value. It triggered a flight from the cryptocurrency market, driving its value from $2.9 trillion last fall to less than a trillion dollars today. The decentralised finance (DeFi)/centralised finance (CeFi) bubble is bursting, the non-fungible token (NFT) craze is burning itself out, algorithmic stablecoins are collapsing, and crypto lenders are going bust. Crypto is in a bear market, folks, but you already know. I just needed to spell it out to you guys. As expected, critics say, 'this is the end, but we've seen this kind of simulation numerous times, if I've been accurate enough. Firstly in 2014, Bitcoin's price crashed when the Mt. Gox exchange collapsed. And in 2018, Bitcoin's price fell 80% as hundreds of ICOs (Initial Coin Offerings) crashed and burned. In both cases, the market eventually recovered, and crypto prices rose higher than before.
Though, times are different. Post-pandemic, WW3 threats. All these lead to higher inflation and the central government' burning' their currency. Investors are taking a step back to observe banks inflating their spreadsheets. It only means lower cryptocurrency prices. But the crypto market has always been easy money as we know it; whether it's a recession or an unprecedented pandemic, cryptocurrency always somehow beats the odds or, let me say, inflation. So the big question is, are the new coins the solution to the 'crypto crash'?
NEW CRYPTO COINS: CAN THEY BEAT THE ODDS?
The answer to this question isn't simply a yes or no. Let me break down something for us. Cryptocurrency has one thing similar to the traditional banking system, the use of dollars. But let's get one fact straight: cryptocurrency dollars aren't real money; they only exist in a virtual space. They are not, and never were, guaranteed by the only institution in the world that can create real dollars, namely the Fed. You're probably wondering about the role the Feds play in this discussion. I would give an instance.
Crypto's most significant limelight came up during the pandemic. Now, it's worth noting that it never reached that percentage before the pandemic, and I will quickly explain the role covid, and the Feds played in this crypto luxuriant growth in 2020. When the pandemic came, the Central Government began to hand out cash flows to help people and closed businesses survive the lockdown. The feds started releasing money like never before. Most of this money made its way into cryptocurrency, raising prices to unprecedented levels and fueling the rapid growth of high-yield lending, complex synthetic assets and toxic derivatives unseen like never before. It triggered most celebrities, and they became bumped about it, and there comes free marketing.
Fast forward to 2022, a post-pandemic period, a looming crisis among powerful countries, i.e., china-Taiwan, Russia-Ukraine, and climate issues. All these cause inflation and make the Feds tighten their hand regarding dollar release from the reserve, all to protect the currency's integrity.
We have established that Bitcoin money only exists virtually, so you will wonder, where does the money come from when I liquidate my coins? The answer is that it still depends on the dollar. Since 1 BTC equals a certain amount of dollars, it means dollars are still a significant factor here. So imagine if bitcoin is more than the available dollars in the market; what happens is that the value of bitcoin will depreciate to accommodate the actual cash it can dispose of. Now, When everyone is trying to cash out cryptocurrencies into increasingly scarce dollars, cryptocurrency prices rapidly fall to the level at which there are sufficient dollars in the system for everyone to be able to cash out. This is the case here; although several other factors also lead to the crypto crash, this is just an essential factor to consider.
CAN NEW CRYPTO COINS BAIL US OUT?
Well, yes and no.
Yes, because if stablecoins can come into the market and people use real money to purchase them, more cash will flow into the market and help build on the cryptocurrency's price. As I mentioned earlier, cryptocurrency prices are typically quoted in dollars, most crypto transactions involve stablecoins pegged to dollars, and dollar-pegged stablecoins are widely used as safe collateral for crypto lending. So more stablecoins mean more cash flows either in purchasing new coins or just as a safe saving as in yield; this, in turn, means more money can go into other investments in the crypto markets.
No, because if the Feds keep tightening their fist on the currency, continuing dollar scarcity will make it impossible for crypto to rise again as it has before. Unless it abandons the dollar and returns to its roots, each crypto coin has its value, 1 BTC = 1 BTC, 1 ETH = 1 ETH, as some core originators always wanted. If not, we may have to keep licking our wounds till we reach stability via another method.