Bitcoin Hits Two and a Half Year Low Amid Cryptocurrency Carnage
The Correction in the Financial Markets Has Been Significant and Prolonged
The NASDAQ peaked in November and has since dropped 26%, putting it back to November 2020 levels. The S&P 500 peaked in December and has given back 16%, its lowest point in more than a year.
The damage has been even worse for cryptocurrency investors. Bitcoin (BTC) peaked at over $64,000 in November and is now trading below $30,000, good for a 53% loss. This is the first time Bitcoin has traded below $30,000 since December 2020. While Bitcoin had been drifting steadily downward since its peak, the price drop accelerated starting on May 4th.
This is right around when the little-known stablecoin TerraUSD (UST), which is supposed to mirror the U.S. dollar and be worth a near-constant $1, lost its peg to the U.S. dollar and plunged to $0.15. The seeming breakdown of the Terra network that manages TerraUSD and other stablecoins caused the cryptocurrency tied to the Terra network, Terra Coin (LUNA), to plunge from over $80 to under a penny, all within one week.
Watching billions of dollars go up in smoke caused panic among cryptocurrency investors. Binance, one of the world’s leading cryptocurrency exchanges, stated that the sheer volume of withdrawals from Terra was slowing down the network and resulting in many pending transactions on the Binance exchange taking extended periods to fill.
The implosion of the Terra network sent shockwaves through the cryptocurrency industry. More than the loss of capital, the collapse of Terra showed yet again that cryptocurrency investing has many pitfalls that don’t exist for other investment types. This uncertainty and fear led to more than $200 billion flowing out of the cryptocurrency markets in a single day last week.
Bitcoin lost nearly a third of its market cap in the selloff, falling below $26,000 at one point. Investors appeared to have felt that was low enough, as it rallied to near $30,000. Whether Bitcoin can continue to recover or if this is a temporary bounce followed by further downside will largely be determined by how confident investors are in Bitcoin and the overall cryptocurrency industry.
Bitcoin is currently changing hands at $29,098.39, down -4.36% on the day. YTD BTC is down -39.07%.
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Disclaimer: Wealthy VC does not hold a position in any of the stocks mentioned in this article.
