Why cryptocurrencies have gone from the next hot thing to a full-on meltdown
Curated from: npr.org
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The cryptocurrency world is in chaos
There is a complete loss of confidence in the space. Bitcoin and other cryptos are plunging, and companies such as Coinbase are announcing layoffs.
However, cryptos are falling sharply because they are being hit by the same factors impacting stocks and other assets. Consumer prices are surging, and the Federal Reserve is hiking interest rates to bring down inflation.
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Cryptocurrencies are by and large speculative financial assets
Since Bitcoin hit an all-time high in November, the value of the world's most popular digital currency has fallen by about 70%, Ether is down by around 70% this year, and so is Dogecoin.
Bitcoin's backers have always claimed the digital currency would be an "inflation hedge," but it hasn't behaved that way. Instead, this crash in crypto prices shows that cryptocurrencies are primarily speculative financial assets subject to macroeconomic forces.
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What is means for those who got into cryptos
It's been a rude awakening for the millions of people who bought cryptocurrencies.
2021 was the height of digital currencies, which swelled to $3 trillion. Today, the total value of the crypto market has been shaved to about $1 trillion.
Some backers of cryptocurrencies still believe a "crypto winter" could lead to a "crypto spring." In the past, deep downturns have led to strong rebounds.
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Regulations on the sector
The increase in amateur investors, combined with the growing complexity of some of the cryptocurrency products, are worrying regulators as they want to prevent people from being taken advantage of.
Crypto markets are still fairly new and there is no clarity on who is in charge of overseeing the space. At the moment, both the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) claim oversight of parts of the crypto market.
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