Updated: Jan 17, 2023, 1:24pm
2022 has been a roller coaster ride for cryptocurrency markets. The market capitalization cryptocurrency market has slid from its peak of $3 trillion to nearly $800 billion, in just a span of one year. Most of the top-performing crypto coins have turned red and are witnessing double-digit losses. The crypto investors are on a major selling spree and sitting on tight positions, meaning a dip all around.
Bitcoin, the world’s largest currency, soared to an all-time high of $69,000 in November 2021, then reached at the levels of $47,000 in January 2022, is now trading below $18,000, post FTX downfall. Similarly, Ethereum, which was at its record high of almost $4900 in November 2021, has now fallen to below the levels of $1300.
Why is the cryptocurrency market moving on a descending trajectory, what’s fueling it? Let’s dig deep through this read.
The entire digital currency market has turned hot red and shows no signs of cooling down anytime soon. In fact, there are few digital coins and tokens, which have seen reeling worse than others.
FTT, the native token of FTX was the backbone of the FTX exchange, has hit rock bottom amid the FTX scandal. FTT which was seen at $26 on September 1, 2022 is today trading at its lowest around below $1. Other currencies such as Solana (SOL), which is referred to as the “Ethereum Killer”, has also seen the worst fall. Solana was trading at $37, its highest in the last three months on November 6, 2022, which has now reached its lowest at $12 levels.
Other altcoins such as Filecoin (FIL), Storj (STORJ), Decetraland (MANA), Apecoin (APE), Flow (FLOW), have plummeted by an average of 20-40% since November, 2022.
The two biggest currencies by trading volume and market capitalization, Bitcoin (BTC) and Ethereum (ETH) have seen massive fall from the huge FTX crash. Bitcoin is now almost trading at its lows around $16,000 levels, and, similarly, ETH, which made its yearly peak around $4,900 levels, is now trading at $1200 levels, as on December 20, 2022.
Contrastingly, Ripple (XRP) and Binance Coin (BNP) are not struggling this much, but they are down almost 9% and 7% respectively. Tether (USDT), USD coin (USDC), Dai (DAI) and TRON (TRX) are among the top gainers on December 20, 2022.
Cryptocurrency, which is known for its extreme volatility, has witnessed a tumultuous time in 2022. The prime reason for the market downturn is the downfall of one of the largest global cryptocurrency exchanges, FTX. FTX’s bankruptcy, and its spat with Binance, has not only triggered a huge sell-off in the market but has also reduced liquidity from the crypto market.
Binance, the world’s largest global cryptocurrency platform, was all set to buy rival FTX, but soon walked away from the buyout deal proposal, citing multiple issues with FTX’s finances and regulatory investigations. Binance’s decision stunned the crypto investors and left Bitcoin to tumble to the lowest level in two years, which touched $69,000 in November 2021.
These surprising turns of events, led to a turmoil like situation in the crypto industry , which resulted in high level of distrust and skepticism among the investors towards centralized crypto establishments and on the regulation front.
The FTX contagion effect is quite evident, several questions have now been pointed out on the survival of other trading and lending firms such as Gemini, Coinbase. Experts believe that their survival strictly depends upon their regulation, governance and management practices.
Apart from the FTX sudden fallout and its contagion effect, the rising interest rates and the recent hawkish tone of the U.S. Federal Reserve’s tighter monetary policy has also added fuel to the fire.
This is not the first time when Indian cryptocurrency investors have seen such extreme volatility. Be it, Terra-Luna crash, Russia-Ukraine war, new crypto tax regime and now FTX collapse, the investors are learning everyday to deal with such situations and are demanding for better rules for operational transparency, governance and regulations to be in place.
The series of unfortunate back to back events over the past year have hugely impacted the Indian investor sentiments negatively. The investors are playing more cautiously now and taking note that the digital assets which they have invested in, are transparent enough or whether they have been used as collateral.
Post the aftermath of FTX, it is highly recommended to always invest in something which you understand wholly and which is regulated. Whether buying in dips, or waiting for the market to correct, it is prudent for crypto investors to take the FTX situation as a wake-up call and invest in the cryptocurrency market only after a thorough research. It is also recommended to invest only 5-10% of the portfolio in digital coins.
Select A Crypto Currency: Choose a crypto coin in which you want to invest. Like any other asset class, each cryptocurrency has its own fundamentals and are backed by different blockchain networks, mining techniques and intrinsic value. As cryptocurrencies are extremely volatile, it is crucial to do your research well and then decide how much money is to be put in that specific cryptocurrency.
Select A Cryptocurrency Exchange: In order to make a purchase of cryptocurrency, it is must for you to have a functional account in a cryptocurrency exchange. A cryptocurrency exchange is an online trading platform which helps you to buy or sell crypto coins To know about the best cryptocurrency exchanges in India, read our article “Compare Crypto Exchanges in India” for more information on exchanges.
Once you have selected a cryptocurrency exchange of your choice, then you need to register yourself by providing the personal information such as your name, address and complete KYC formalities. Then, you receive a deposit address from the platform. Once you get that, you are ready to invest.
Choose Your Comfortable Payment Mode: Once you have selected the cryptocurrency exchange of your choice, make sure that you also select the most viable online payment mode such as credit/debit cards or instant bank transfers, peer-to-peer options (P2P), or even a crypto wallet. You need to add funds to your payment gateway in order to purchase a crypto coin.
Purchase Cryptocurrency: After adding the funds, now you can easily purchase your selected cryptocurrency. After logging the crypto platform along with added funds, you will have to select your chosen crypto coin from the various currencies, which will be shown against their current market price, total volume, exchange symbol and other relevant market information. You need to click on the “buy” tab which will help you to make a purchase of your selected cryptocurrency.
Store you Crypto Securely: Once you receive the crypto coins in the exchange of fiat currency, remember to store your currencies in the most secure way. Remember, cryptocurrencies are not backed by any regulated entity and thus it is very important to secure them safely as they are always at risk of theft or hacking.
While almost all the exchanges offer online wallet options, some investors also prefer cold storage, which allows you to save your coins offline. Cold wallets are not connected via the internet and thus regarded as one of the safest options for holding cryptocurrencies.
“Sell” On Time: This is a very crucial step, which finally helps you make money out of investing in any crypto coin. The way you have placed an order to “buy” cryptocurrency, in the same way, you can sell the cryptocurrency, by clicking the “sell” tab which will be shown in your portfolio. The investor also has the option to sell their investment fully or partially based on their own call. It is very important to book your profits timely.
Whether it is a downfall of such a humongous global exchange, FTX, or fear of rising inflation and higher interest rates, everything altogether has put an immense dent in investor confidence as they shy away from making any new investments in the market.
With the uncertainty around and looming macroeconomic situations worldwide, it is better to observe the market moves prudently. Now is certainly a good time to observe the nitty-gritties of the cryptocurrency market closely and not make any impulsive and reckless decisions.
And one never knows, once this chaos fizzes out completely, the crypto investors may be able to find their favorite digital assets at a much fair value.
Rashi Maheshwari is a Deputy Editor for Forbes Advisor India. She has more than a decade of experience working in news, public relations and communications. In the past, she has worked with CNBC Awaaz, CryptoWire, among others and has covered beats including insurance, personal investments and cryptocurrency. She is a travel enthusiast and would like to visit every country and try as many different culinary specialities as possible.
