MOST major cryptocurrencies have dropped by 20% or more in the past week as the crypto market plunged severely.
The recent bear market has erased more than $600billion in market capitalization from the market, according to Barrons.
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Bitcoin is down from $36,190 per coin on May 5 to $28,629 – a drop of more than 21%.
Ethereum has similarly dropped almost 30% since May 5, from $2,742 a week ago to $1,937.
Cryptocurrencies have become somewhat notorious for sudden and unpredictable booms and busts – coins can plummet or skyrocket in a matter of minutes.
This volatility makes crypto investments riskier than other types of investment.
There’s also scant regulation for cryptocurrency firms, meaning you’re without protection if and when things go wrong.
That’s why it’s important to not invest more than you can afford or into anything you don’t understand.
Stablecoins destabilize
The stablecoins Luna and TerraUST have been some of the hardest hit, plunging by 99% and 58% respectively.
Stablecoins are backed by other assets in an attempt to limit volatility.
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According to Coindesk, the price of UST is “algorithmically stabilized” through smart contracts involving its sister coin.
Bitcoin backs Luna, and Luna, in turn, stabilizes UST.
UST is pegged at $1 through a process of destroying Luna coins and minting UST.
Theoretically, this process is supposed to make Luna more valuable as it becomes more scarce and keep the price of UST from moving above its $1 benchmark.
A drop in UST price created an unstable market for the stablecoin, however, sending it plunging below $0.50.
“When that peg was broken, it shook investor confidence not just in stablecoins but across decentralized finance,” Luzi Ann Javier, markets editor at Finder.com, told The Sun.
“It’s also raising concerns that regulators around the world would quickly step in. That could spell more trouble, should the tokens survive this rut.”
Regulation may be coming sooner than some investors expect, spurred in part by this recent bear market.
A global crypto regulatory body may launch within the next year, chair of the watchdog International Organization of Securities Commissions Ashley Alder said in a podcast on Thursday.
Crypto predictions
Investors shouldn’t expect any immediate relief in the crypto market.
“Short term, there could be more blood to come,” said Alex Enser, founder of My Crypto Advisor.
He said that during bear markets, altcoins tend to lose around 85% to 90% of their value.
Experts project that Bitcoin and Ethereum will continue to fall as well.
FXStreet predicts Bitcoin could tumble as low as $19,000, and Ethereum could bottom out below $1,500.
Mr Enser similarly expects Bitcoin to drop to the $19,000 to $21,000 range.
UST’s founder is attempting to repeg the coin with the $1, but it may never regain its footing.
“If UST does restabilize, it’s a good opportunity but it’s definitely a gamble,” Enser said.
“We have no idea how that’s going to play out.”
For the latest cryptocurrency news, check out The Sun’s crypto live blog.
And read these five tips from an expert for beginner investors.
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