The Crypto Collapse

Cryptocurrency is a relatively young sector, having been created in 2008. Now, in 2022, the market has experienced its fair share of highest highs and is presently experiencing one of its lowest lows.

With crypto’s uncertainties in 2022, the primary token, Bitcoin, has seen its market value collapse, along with Altcoins.   

The Rise and Fall of Bitcoin

The Bitcoin currency (BTC) was launched simultaneously with the introduction of Bitcoin as a blockchain in 2008, and it was the first of its kind in history. By 2011, the cryptocurrency had surpassed US$1 and had fluctuated throughout the year, reaching a high of US$32.

Bitcoin’s value surged to $1,000 by 2013 and fluctuated until 2017 when it reached US$19,000. After extensive media attention, cryptocurrencies were more popular and broadly accepted by 2017.

The following two years saw the cryptocurrency attempt to play catch up to its previous peak of US$19,000 but never quite making it.

In 2020 when the coronavirus outbreak slowed the economy and raised concerns about inflationary pressures on the US dollar, Bitcoin’s price began to accelerate. Bitcoin was at its highest by the year’s end, sitting at just over US$29,000.

2021 saw the cryptocurrency double in value and sit at a modest US$61,000, but the beginning of 2022 saw Bitcoin and the crypto market crash. Bitcoins peak was suddenly a mountain too high to climb as Bitcoin’s value plummeted to US$19,0000 in July 2022.

Uncertainty Around Potential Crypto Regulation

As Bitcoin and the crypto market are seeing massive losses, regulatory uncertainty has followed suit. 

Domino Effect

It’s easy to forget that cryptocurrencies remain mainly uncontrolled globally. This implies that any government decision regarding cryptocurrencies will likely have an immediate impact on the market.

By definition, cryptocurrencies are unconstrained, not bound by country boundaries or specific government entities.

This, however, poses a dilemma for policymakers who are used to working with clear-cut asset classifications.

Regulating Cryptocurrency

Regulation is one of the most important challenges to the continuing expansion of bitcoin. Governments worldwide have passed restrictions to limit the usage of cryptocurrencies in their individual nations. Many countries see cryptocurrency as a tool to avoid banking restrictions and encourage money laundering.

For the time being, most governments are investigating how to merge cryptocurrencies with their existing currencies. Nonetheless, there is a considerable chance of legislation regulating the usage of cryptocurrencies.

Dangers of Investing in Crypto

Crypto investments are unlike any other in the financial system. They defy traditional investing patterns and are prone to absurd fluctuations, along with the following issues:

Volatility

Volatility is a fundamental measure of the risk associated with a financial asset and cryptocurrencies are among the most volatile investment possibilities.

The cryptocurrency market is fuelled by speculation, with some speculators swiftly purchasing and selling their holdings when there is an indication of a price decline. A single unfavourable popular tweet or news report about a cryptocurrency might rapidly cause its price to fall.

Cybertheft and Hacks

Cryptocurrencies are stored in digital wallets and trades on cryptocurrency exchanges. Because of their internet dependency and secrecy, cryptocurrencies are extremely enticing to thieves. Criminals utilise a variety of phishing tactics to obtain access to bitcoin wallets and trading sites.

Decentralisation

One of the most appealing aspects of cryptocurrencies is their absence of a central authority.

However, this absence has downsides, especially when things go wrong. For example, in most online financial transactions, electronic money transmission is normally guaranteed and managed by a financial institution. So, if there is an issue with the transaction, you may quickly contact them to rectify it.

This isn’t feasible with a cryptocurrency transaction. Furthermore, its decentralised design makes it difficult to identify the proper entity with whom to register a transaction dispute. As a result, most cryptocurrency investors are encouraged to trade through trustworthy digital currency exchanges.

Unregulated Platforms/Exchanges

Because of the popularity of cryptocurrencies, the number of crypto exchanges and trading platforms has increased. Choosing an exchange has grown more complex as a result. The lack of governmental control has fostered the proliferation of fraudulent exchanges and market manipulation in cryptocurrency trading. Some trading exchanges charge expensive fees and have no regulations in place to prevent manipulative or suspicious trading, while wholly uncontrolled exchanges may engage in predatory behaviour.

Bottom Line

Investing in crypto is high risk and an environment teeming with scam artists due to its decentralised and lawless character. Inexperienced investors should only invest what they can afford to lose without severe consequences. If the last year is any indicator, the market is volatile and should not be taken lightly.

If you have any queries about cryptocurrency investment or the above information, please do not hesitate to contact a specialist member at your local Accru office today.

About the Author
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AccruMelb
Accru Melbourne, part of the Accru group, is an award winning financial services organisation. Our highly personalised approach and dynamic advice makes us standout in the fast paced, ever-changing business world.
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