2022 has been a roller coaster ride for cryptocurrency markets. The cryptocurrency market capitalization has grown from $3 trillion to $800 billion in a year. Most of the top-performing cryptocurrencies turned red, posting double-digit losses. Cryptocurrency investors are actively selling and taking heavy positions, which means bearishness is everywhere.
Bitcoin, the world's largest currency, reached a high of $69,000 in November 2021, then reached $47,000 in January 2022, and is currently trading below $18,000 after the drop in FTX. Similarly, Ethereum, which peaked around $4,900 in November 2021, has now fallen below $1,300.
Why is the cryptocurrency market in a downward trend, what is the reason for this? Let's dive into this reading.
The cryptocurrency market continues to fall
The entire digital currency market has turned bright red and shows no signs of cooling down anytime soon. In fact, several coins and digital tokens have fallen more than others.
FTT, the original token of FTX, became the backbone of the FTX exchange after it hit rock bottom in the FTX scandal. The September 1, 2022 $26 FTT is trading at lows below $1 today. Other currencies such as Solana (SOL), which has been dubbed the "Ethereum killer", also bore the brunt of the decline. Solana was trading at $37 on November 6, 2022, a three-month high, and is now down to $12.
Other altcoins such as Filecoin (FIL), Storj (STORJ), Decetraland (MANA), Apecoin (APE), Flow (FLOW) are down an average of 20-40% since November 2022.
The two largest currencies by trading volume and market capitalization, Bitcoin (BTC) and Ethereum (ETH), have seen significant declines following the massive FTX collapse. Bitcoin is now trading near the bottom of around $16,000 and similarly, ETH, which hit a year high of $4,900, is trading at $1,200 on December 20, 2022.
In contrast, Ripple (XRP) and Binance Coin (BNP) are not struggling as much, but 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.
Reasons for cryptocurrency collapse in 2022
Cryptocurrency, known for its extreme volatility, has had a turbulent year in 2022. The main reason for the market slowdown is the failure of FTX, one of the largest cryptocurrency exchanges in the world. The collapse of FTX and the dispute with Binance not only caused a major sell-off in the market, but also led to a decrease in liquidity in the cryptocurrency market.
Binance, the world's largest global cryptocurrency platform, was poised to acquire rival FTX, but quickly pulled out of the proposed acquisition deal, citing various issues with FTX's financial and regulatory investigations. Binance's move surprised cryptocurrency investors and pushed bitcoin to a two-year low of $69,000 in November 2021.
This surprising development has created a turbulent situation in the cryptocurrency industry, leading to high levels of distrust and skepticism towards centralized cryptocurrencies from investors and regulators.
The impact of the FTX contamination is quite clear, now there are several questions about the survival of other trading and lending companies such as Gemini, Coinbase. Experts believe that their survival depends largely on regulatory and management practices.
In addition to the sudden impact of FTX and its contaminating effect, rising interest rates and the recent tightening of the US monetary system added fuel to the fire.
Is it safe to invest in cryptocurrencies now?
This is not the first time Indian cryptocurrency investors have seen extreme volatility. Be it the collapse of Terra Luna, the Russian-Ukrainian war, the new cryptocurrency tax regime, and now the collapse of FTX, investors are learning to deal with these situations every day and demand better rules for transparency of operations, governance and regulation.
The unfortunate events of the past year have had a major negative impact on investor sentiment in India. Investors are now behaving more cautiously, understanding that the digital assets they invest in are relatively transparent or used as collateral.
After FTX, it is always recommended to invest in something that you fully understand and that is regulated. Crypto investors are advised to take the FTX situation as a red flag and invest in crypto market currencies only after thorough research. It is also recommended to invest only 5-10% of the portfolio in digital coins.
A step-by-step guide to investing in the Indian cryptocurrency market
Choose a cryptocurrency: Choose a cryptocurrency to invest in. Like any other asset class, each cryptocurrency has its own foundations based on different blockchains, mining methods and intrinsic values. Since cryptocurrencies are very volatile, it is important to do your research well and then decide how much money to invest in that cryptocurrency.
Choose a cryptocurrency exchange: In order to buy cryptocurrency, it is important to have an account with a cryptocurrency exchange. Cryptocurrency Exchange is an online trading platform that helps you buy or sell cryptocurrencies. To learn more about the best cryptocurrency exchanges in India, read our article "Comparison of Cryptocurrency Exchanges in India" for more information on the exchange.
After choosing the right cryptocurrency exchange, you need to register by providing personal details like name, address and completing KYC formalities. The platform will then provide you with a deposit address. Once you get that, you're ready to invest.
Choose a convenient payment method: After choosing your chosen cryptocurrency exchange, make sure you choose the most convenient online payment method, be it credit/debit card or instant bank transfer, peer-to-peer (P2P) options or even online. cryptocurrency wallet To buy cryptocurrency, you need to add funds to a payment gateway.
Buy cryptocurrency: After adding funds, you can easily buy the cryptocurrency of your choice. After registering a cryptocurrency with additional funds, you need to select the cryptocurrency of your choice from the various currencies displayed in terms of current market price, total volume, exchange symbol and currency and other relevant market information. You need to click on the “Buy” tab which will help you to buy the cryptocurrency of your choice.
Keep your cryptocurrencies safe: Once you've bought the cryptocurrencies on the exchange you need, remember to keep your coins as safe as possible. Remember that cryptocurrencies are not recognized by any regulatory body, so it is very important to keep them safe as they are always at risk of being stolen or hacked.
While almost all exchanges offer online wallet options, some investors prefer cold storage, which allows them to store their coins offline. Cold wallets do not connect to the Internet and are therefore considered one of the safest ways to store cryptocurrencies.
"Sell" on time: This is a very important step that will eventually help you make money by investing in any cryptocurrency. Just like you place an order to "buy" a cryptocurrency, you can sell a cryptocurrency by clicking on the "Sell" tab that will appear in your wallet. The investor also has the option to sell all or part of his investment at his discretion. It is very important to book your earnings on time.
The result
Be it the collapse of the global stock market giant, FTX, or the fear of rising inflation and higher interest rates, it has seriously undermined investor confidence as they hesitated to make new investments in the market.
Given the surrounding uncertainty and changing macroeconomic conditions around the world, it is best to watch market movements with caution. It is definitely a good time to pay attention to the details of the cryptocurrency market and avoid making impulsive and hasty decisions.
And you never know, when all this chaos ends, crypto investors may find their favorite digital asset at a reasonable price.