As the volume of Bitcoin traded on exchanges has dropped to a new 18-month low, we can only wonder what the wider consequences will be. While Bitcoin’s fall is certainly a negative development, other Cryptocurrency markets have been trending downward due to external economic factors. Listed below are some of the possible outcomes. Read on to understand the implications of this new low. Let’s begin with the short-term consequences.
Volume of bitcoin traded on exchanges has dropped to a new 18-month low
Despite the market’s recent rally, the volume of bitcoin traded on exchanges has declined to an 18-month low, a sign that investors are putting their money elsewhere. While the decline is not as dramatic as it might seem, it still has implications for the entire crypto ecosystem. For example, Uniswap’s daily trading volume was once more than Coinbase Pro’s. But volumes there have fallen by 18% in the last month, according to Dune Analytics.
A lack of volatility is one of the biggest reasons for the drop in overall volume on exchanges. While there is an increasing number of HODLs, volume on exchanges has fallen substantially. Bitcoin peaked last Friday at $15,889, a new 18-month low. While overall spot trading volumes have fallen, the average transaction value has increased. CryptoCompare’s Constantine Tsavliris has told Decrypt that the lack of volatility has been one of the reasons for the drop.
Although bitcoin’s price dropped along with the stock market, Ethereum and other cryptocurrencies followed suit. This decline has affected many other cryptocurrencies, dragging down the entire market. Analysts attribute the decrease to investors pulling money out of more risky assets, particularly in times of rising interest rates. However, crypto boosters have pointed to the fact that these digital assets are a hedge against losses in other markets.
Besides ZAIF, other notable crypto exchanges have also launched. ASCENDEX, a Singapore-based exchange, has a regulated regulatory structure and allows U.S. investors to trade on its platform. Unlike MT. GOX, ZAIF also offers few assets but low fees. Meanwhile, POLONIEX is a Panama-based unregulated exchange that rose to prominence during the ICO craze of 2017-2018. It is owned by the developer of TRON BLOOD.
Crypto markets have been trending downwards due to external economic factors
The Celcius announcement accelerated the selloff of crypto markets on Monday. The markets had been trending down throughout the weekend, as investors became spooked by surprisingly high inflation and a Federal Reserve interest rate hike. The Labor Department recently released annual inflation data, and it showed that U.S. inflation has jumped to 8.6%, the highest increase in over 40 years. The Federal Reserve will also announce key interest rates.
The emergence of cryptocurrency was initially driven by dreamy expectations of a new economy. The goal was to replace the fiat currency system, which crashed in 2009. A decade later, the same world is in a similar situation, with cryptocurrency prices descending by more than eighty percent. Today, it’s all about dollars, and the financial crisis of 2008 is playing out in miniature form. Early investors are still in a comfortable position, but the drop in prices is weighing on those who bought at the beginning.
Moreover, some countries have implemented capital controls to prevent a rise in cryptocurrencies. Many countries have high taxes and capital controls, and use cryptocurrencies to circumvent these restrictions. As a result, countries with capital controls have responded with lukewarm responses to the growth of cryptocurrencies. Some central banks are supportive, while others are hesitant due to the high volatility of the market.
Although cryptocurrencies remain a relatively new asset class, their increased correlation to traditional investments has limited their perceived risk diversification benefits. This has increased the risk of contagion throughout financial markets. Even though the total market capitalization of cryptocurrencies is between one and two trillion dollars, it still does not represent systemic risk until 2021. There are no known indicators that indicate that crypto markets will crash in the near future, but it could still have a profound effect on the overall market.
While the crackdown could have a significant impact on global prices of crypto assets, analysts believe that the crackdown will not have a major effect on their prices. Major crypto exchanges are not directly affected by the crackdown. Although Binance has been blocked in China since 2017, Coinbase and PayPal are not. These companies have declined to comment on the potential consequences of a crackdown on crypto transactions in China.
Bitcoin’s fall could have wider consequences
Cryptocurrency crash would wipe out all of the wealth of digital assets. Long-term holders would suffer small losses compared to the prices. But they would forfeit large unrealised gains. The biggest losses would be on those who bought crypto less than a year ago. The average crypto price stands at $37,000, so the collapse would affect more than just individual holders. Institutional investors are most exposed to crypto, including hedge funds, mutual funds and university endowments. Some companies are also exposed to cryptocurrencies.
Cryptocurrency markets are vulnerable to systemic risks. A bitcoin crash could cause widespread turmoil across the entire market, even if it doesn’t affect the traditional financial system. Because many of the intermediaries that deal with crypto are offshore, any disruption could have wider ramifications for the traditional financial system. Although Bitcoin is a relatively new technology, the potential for wider market disruption is still very high. However, there is still a long way to go before the cryptocurrency market is fully regulated.
The market is in a state of chaos. The Dow and Nasdaq have seen their worst single-day drops since 2020. And the S&P 500 has reached a year’s low. Aside from these issues, the Russian invasion of Ukraine has unsettled the market and exacerbated inflation, supply chain issues, and oil prices. Many crypto evangelists believe the price of Bitcoin will eventually decouple from the stock market.
The decline of Bitcoin could have broader environmental implications. The amount of power required to mine the cryptocurrency is massive. According to scientists, this amounts to the energy consumption of 2.6 or 2.7 billion households per year. This is enough to push global warming beyond 2degC. According to one study, China alone could generate 130 million tons of CO2 by 2024. This could have far-reaching consequences. This trend is causing governments to take action.
It is possible that every country will outlaw Bitcoin someday, but the Bitcoin network would still remain, which means that millions of people worldwide will lose a lot of money. Moreover, if this happens, investors would not be able to sell back their coins, as they would have to wait until the prices were above $21,000 before they would be forced to delist the asset from exchanges. The price will drop below this level and the network will not be able to survive the fall.
If Bitcoin’s price goes further, other cryptos will follow suit. With the crypto market crashing, investors will sell off their cryptocurrency holdings, and they will try to cash out to avoid further losses. This would only worsen the situation as people would want to avoid any further losses. There is no definitive answer to why the cryptocurrency market is so vulnerable, but there are several factors that could cause a collapse. But whatever the cause, it is certain that the cryptocurrency market will eventually recover.
