November 2021 is going to be remembered as the best month for crypto so far. Bitcoin crossed 67K dollars, almost crossing the 70K dollar mark. Ethereum crossed almost 5K dollars, and the entire crypto market value crossed 3 trillion dollars. Early investors definitely made fortunes. However, those who have purchased the coin at the peak have seen their investments only going down.
Bitcoin price fell to 18K dollars from its November peak, whipping over 70 percent of the wealth. In fact, the total value of crypto has fallen by 2/3, from 3 trillion dollars to just 980 billion dollars. People lost fortunes, especially retail investors who purchased popular coins in hopes of making some extra income.
That’s like if the stock market lost over 60 trillion dollars worth of value, falling from 93 trillion dollars to just 30 trillion dollars. The world would be in absolute shock. But the crypto market is just a small fraction of the stock market, so it’s not causing such a huge crisis that could shake countries like the 1929 stock market crash, the worst in history, as the market fell 89% from its peak, which led to the great depression that lasts over 10 years and it took a world war for the country to get out of the crisis.
If the market had fallen so much before the recession started, what’s going to happen next since we are officially entering a recession? Interest rate hikes are most likely not over yet. They will continue until they cross 3 or 3.5 percent since that looks like the number that will bring down the demand enough to stop the highest inflation in 4 decades.
A recession is bad, but hyperinflation is much worse since the only way to get out of it will be by introducing a new currency. Yes, all of your US dollars will be worthless if hyperinflation happens. But it’s not just the US that’s hiking rates. The bank of England and other central banks are hiking rates and warning of a coming recession.
The question that many are wondering is – if a 0.5 increase in interest rates crashed some coins like Terra Luna, how will the recession impact the crypto market? Which crypto coins will survive the storm? And how long will the storm last? We will answer all of these questions and many more today in this article.
The biggest sign of a recession is probably that corporations are laying off workers. Coinbase, one of the most popular crypto exchanges, laid off 18% of its workforce, firing over 1,180 employees, and warned investors that a potential recession could lead to a prolonged bear market for cryptocurrencies.
Gemini, another popular exchange, said it would cut about 10% of its 1,000 employees. Other exchanges and crypto companies said that they are also laying off 10 or 20 percent of their workforce, preparing for a long recession. After what happened to Terra Luna, investors got scared.
The Terra (LUNA) crypto token first crashed from $120 to $0.02, a 99.9% correction, of which 99% was within 48 hours of a black swan event on May 11th – 12th. The coin somehow managed to drop further, reaching $0.0001. But the big deal was that alongside with it crashed TerraClassicUSD, which is a stablecoin by 99% as well.
The name itself should tell you everything you need to know. Unlike other crypto coins, a stablecoin is pegged to the dollar, meaning one stable coin equals one US dollar. There are many reasons why it crashed, but the primary reason is that the fed raised the rates, and investors got scared and sold off their coins crashing the price in the process.
That’s a clear indication that no matter how big the crypto has become – investors don’t trust crypto enough to keep holding crypto when a storm hits the economy. Crypto has come a long way where institutional investors have entreated the game, but that’s not enough since the industry is still full of scams and worthless projects. Many cryptocurrencies have little purpose other than making money for their developers, which means investors need to be selective.
The goal of crypto was to decentralize the financial system, but how can you use something as a currency when it’s so volatile? In fact, there are over 12K cryptocurrencies out there. A currency is a Medium of exchange, but these cryptocurrencies don’t have anything to do with currencies besides the name.
The whole purpose behind them is to hype them until everyone starts buying, hoping that this is their opportunity to get rich and then sell off once the price spikes making developers and early investors rich. Everyone else loses since the cryptocurrency doesn’t serve any purpose. Technically, it can be used as a currency, but it’s too small and no one trusts that it will not go bankrupt the next day.
In 2021 close to US$14 billion was scammed from investors using cryptocurrencies. The developers would lure investors with fancy words such as blockchain or defi, I am going to get a lot of hate for saying this, but it’s a fact. You can’t hate me for saying the truth even if you don’t like that. I have made a video a year ago saying what exactly will happen to crypto once the fed raises the rates, and that’s what has been happening since the fed began hiking the rates.
Squid coin is just one out of many examples where developers took advances out of the Netflix show that instantly became popular worldwide. Reports show that more than 46K Americans were scammed last year with crypto scams. And that’s just Americans. If we take the entire world, that number is definitely higher.
So as long as the industry is growing based on the greater fool theory, it will not be stable enough for investors to trust their investments in periods of uncertainty. The great fool theory basically says that one can sometimes make money through the purchase of overvalued assets because someone else will pay an even higher price later for it.
We hear so many predictions of where the future price of different crypto coins but none of them are based on anything real since in 99 percent of cases, it’s pomp and dump. It’s important to understand this because recessions expose everyone. There is no cheap money to borrow, and pretend like you have developed a revolutionary technology that’s in high demand with fancy words such as blockchain or defi or decentralized or whatever else.
But this is not the first time crypto is going through a storm. The last storm was from 2018 to 2020, when the price of bitcoin dropped from almost 19,600 USD to as little as $3,185. That’s 85 percent and for most of 2018 and 19, the price remained around 3 to 6K.
However, the situation is different this time. We have institutional investors who are still holding a lot of cryptos. Chainanalysis very roughly estimates that institutional investors (anyone with more than $10mn to play with) accounted for 44 percent of total crypto trading at the end of the second quarter of 2021, up from 8 percent less than a year before.
The storm will most likely last around 2 years as well since the fed will most likely won’t lower the rates for another 2 years. This is just a prediction since everything depends on inflation. Most cryptos are definitely going to go bankrupt since it won’t make sense for miners to keep mining the coin if it’s economically unfeasible, especially since we are having an energy crisis that could get much worse by winter.
It’s really difficult to predict what is going to be the bottom, but if it falls by 85 percent as it did during the last crypt storm, it might fall as low as 10K dollars during the next 12 months. Crypto companies already have heavy losses. Coinbase, one of the largest cryptocurrency exchanges, reported a $430 million quarterly loss and said it had lost more than two million active users. And that’s just the beginning.
Crypto lenders such as Celsius and Babel Finance paused withdrawals and transfers between customer accounts. Other firms are declaring bankruptcies for failing to meet their debt obligations which tells a lot about how these companies were simply operating on cheap cash that was available for the last 2 years. The storm has just started, so the real challenge is still ahead of us.