Starting in 2008, cryptocurrency has now become a pretty big asset class for many people around the world. By the fall of 2021, its value had exceeded $3 trillion. Millions of Muslims in different countries also bought various cryptocurrencies to make some quick buck. The value of cryptocurrencies has experienced huge fluctuations in the past as well. However, in the few weeks gone, its price has crashed. It lost almost $1.3 trillion in a few short weeks. Is this the end of the world for crypto investors?
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Maybe, not. This isn’t the first time crypto has taken a big dive. And it won’t be the last time either.
The market cap of crypto is now, at the time of this writing, just half of what it was in November 2021. We saw a 51% drop in the value of Bitcoin, the favorite child of the crypto parent. As of January 24, 2022, it was trading at $33,000. Ethereum, another type of crypto was down by 54%. Currently, it is trading around $2,200. Dogecoin, in the meantime, has lost 82% of its value.
Certainly, it is not the first time crypto has shown such erratic behavior. Does it make any difference in the grand scheme of things?
The burst in its value may not threaten the world economy in a short term. However, it has negatively impacted millions of small to medium-sized investors almost everywhere.
What Has Caused the Crypto Crash?
Based on the analysis we have conducted so far, the value of cryptocurrencies has dropped due to the following reasons.
- Investors taking too much risk
- Cryptocurrency markets are not liquid enough
- Various governments enforcing too much regulation on the asset class
- Crypto security breaches cause fear.
- Crypto influencers causing volatility
- Cryptocurrency correlations with the stock market
Who Are Crypto Investors?
Traditional stock markets have attracted rich investors in most cases. However, based on a research report by NORC, 44% of crypto investors are poor and middle-class people who are not much educated. They do not know much about this new asset class and do not know how it works properly.
So, what should we do, the ordinary folks about cryptocurrencies?
What Should Small Would-be Crypto Investors Do?
Perhaps, would-be crypto investors need to take the following two steps to mitigate their potential losses if they want to continue investing in cryptocurrencies.
- Educate themselves about cryptocurrencies and how they work in the financial system
- Diversify their portfolio in buying crypto and other asset classes.