The cryptocurrency markets have been promising since 2008, however, the dips are worse in 2022. Early May, the cryptocurrency markets seemed to be picking up but went down after the instability of $LUNA. The market tried to recover, but is completely collapsed in June. As of now, cryptocurrency users have liquidated over $200 billion assets within 24 hours, that is, 14th June, 2022, at the time of writing this article.
Probable Reasons for The Red Markets
Crash of $LUNA. Terra Luna is a cryptocurrency founded by Do Kwon in Terra Labs in 2019. The crypto is a combination of two coins UST and LUNA, with its native token as $LUNA. Many people lost life savings following the LUNA Crash. During the crash, many people liquidated assets leaving the value of the coin to near zero. LUNA crash affected the cryptocurrency markets generally, and investors liquidated assets from other crypto platforms. LUNA exposed the volatility of cryptocurrency markets; new investors fear volatile markets.
Stock Market Crash. The stock market is like the glue of global financial markets. Other markets for example, the cryptocurrency markets depend on the stock markets. A general decline in economic activity, production and sales are among the early signs that most nations are heading into recession.
Rumors of Recession. Following the Coronavirus pandemic, most financial advisors predicted a reset in most financial markets. Many people did not think it would be soon. However, following major decisions and keen financial analysis, most cryptocurrency CEOs are preparing for recession. The inflation rate for example in the US is as high as 8.6%, as a result, many people predict that recession will begin in2023 in United States.
High inflation. Even first world countries are experiencing inflation. Most economists predict that inflation rates will exceed 3-4% in 2023. Crypto companies like Coinbase are laying off workers saying that they are preparing for recession .
Liquidation from cryptocurrency markets. Fear is a disease among traders. No one wants to sit back and watch as their portfolio crashes to a -98% or to 0. Fear makes many investors liquidate cryptocurrency assets. Many new investors buy and sell the news, hence the high volatility of the cryptocurrency markets.
Closing Thoughts
Liquidation is a proper risk aversion or control method, however, research shows that cryptocurrency holders with 'diamond hands' benefit the most. Cryptocurrency whales move assets in yield farming or earning accounts to earn interest during the bear markets. I will quote again, 'Be fearful when others are greedy, and greed when others are fearful', however, is this the right time to apply that? If a coin collapses to 0 can you recover? I would advise stake your coins till the bear market is over.
Comments