New Delhi, Jan 22: Bitcoin, along with other digital cryptocurrencies, crashed to its lowest level on Saturday and the continuing meltdown has wiped out over $1 trillion from the global crypto market value.
Bitcoin was hovering at $35,000 per coin and the largest digital asset by market value has lost nearly 50 percent since reaching its peak in November 2021.
Bitcoin hit an all-time high of roughly $69,000 in November.
Other digital currencies, Ethereum, Finance Coin and Cardano also witnessed similar meltdowns. Solana, Dogecoin and Shiba Inu also saw massive drops.
Bitcoin has crashed below $36,000 — a level below which “there is not much support until the $30,000 level,” Edward Moya, senior market analyst at Oanda, said in a note.
Bitcoin’s decline since that November has wiped out more than $600 billion in its market value.
What triggered the crash?
The main cause behind the latest rout is believed to be the proposal by the Russian Central Bank to ban cryptocurrency. The Central Bank of Russia yesterday stated it was proposing to the government that all use and mining of cryptocurrencies on Russian territory be banned.
This move would be taken due to the risks that cryptocurrency poses to financial stability, the sovereignty of monetary policy as well as the financial safety of its citizens, said the bank. The legal status of cryptocurrency has shifted quite a bit in the country in the past.
While Russia has been resistant to cryptocurrencies for years, citing threats of terror financing, it had still granted cryptocurrencies legal status in 2020. However, the use of the tokens as payments was banned.
What other factors affect the downside movement?
Even before the news of the Russian central bank demanding an immediate ban on cryptocurrency, a large portion of the market was already trading in the red.
The US Federal Reserve, arguably the most important central bank in the world, is expected to hike interest rates multiple times through the year to curtail the rising inflation in the country. The hawkish stance of the US Fed has made investors more cautious of investments, while weak macroeconomic indicators due to the resurgent COVID-19 wave have made bond yields significantly more attractive to investors.
Despite the negative signalling from the Russian government, awarding of the legal status had meant that Russia had quickly become one of the biggest crypto adopters in the world. China’s ban on cryptocurrency had resulted in a similar rout before the crypto market pared back the losses and gained. But, Russia had become the third-largest Bitcoin mining hub in the world.
Crypto assets such as Bitcoin have matured from an obscure asset class with few users to an integral part of the digital asset revolution, raising financial stability concerns.
Given their relatively high volatility and valuations, cryptocurrencies’ increased co-movement could soon pose risks to financial stability especially in countries with widespread crypto adoption, according to IMF research.
It is, thus, time to adopt a comprehensive, coordinated global regulatory framework to guide national regulation and supervision and mitigate the financial stability risks stemming from the crypto ecosystem.
The market value of these novel assets rose to nearly $3 trillion in November from $620 billion in 2017, on soaring popularity among retail and institutional investors alike, despite high volatility.
With inputs from news agencies and IANSÂ
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