Cryptocurrency has been enjoying a wild ride. After beginning the year reaching startling new highs and shattering records, it's now dropping just as swiftly.
Bitcoin (BTC) and Ethereum (ETH) have both been down approximately 30 % since mid-May, and Dogecoin has declined by more than 40% in the same span of time. For investors who are new to crypto or are considering investing, this abrupt drop may be nerve-wracking.
Whether you're considering buying, have already invested, or are simply curious about what's going on with cryptocurrencies, there are a few things to know about the latest drop or crash.
1. What caused it?
The crypto crash looked to have come out of nowhere, but there were a few causes that lead up to it. For one, Tesla CEO Elon Musk declared that the firm was suspending its acceptance of Bitcoin as a form of payment due to worries over its impact on the environment.
In order for Bitcoin to survive over the long run, it needs widespread acceptance among retailers. When Tesla revealed earlier this year that it would start taking Bitcoin, crypto fans were optimistic that this may imply other corporations would follow suit. Now that Tesla has backtracked, many investors are concerned that Bitcoin will have a harder time garnering acceptance — especially considering Musk has been one of Bitcoin's most prominent proponents.
Around the same time as Tesla's announcement, China began cracking down on bitcoin as well. While China has discouraged crypto for years, it recently stated that it was implementing harsher fines for Bitcoin mining — the act of creating new Bitcoin tokens. Bitcoin mining has always been centered in China, and the country's crackdown could damage the worldwide crypto market.
2. Is this rare for crypto?
While the recent crypto crash may be alarming, it's nothing that cryptocurrencies haven't seen before. Crypto has always been vulnerable to severe volatility, so this is not necessarily a new phenomenon.
In reality, even the biggest names in crypto, Bitcoin and Ethereum, have undergone tumbles considerably worse than the present drop. The price of Bitcoin has plunged by around 80 percent in the past, and Ethereum once lost more than 90 percent of its value over the course of a year.
Ethereum Price statistics by YCharts
Cryptocurrency is one of the most volatile sorts of investments out today, so plunges like these shouldn't be too unusual. Many analysts also believe crypto has been overvalued, therefore it was only a matter of time before the bubble burst.
3. Is it likely to recover?
Despite their severe downturns, the biggest cryptocurrencies have regularly recovered from their slumps. Both Bitcoin and Ethereum went on to see their prices climb dramatically after losing 80 percent and 90 percent of their worth, respectively.
Even factoring in the current slump, Bitcoin's price is still up more than 300 percent over the past year. Ethereum is up by an astounding 1,150 percent in the same time span.
That yet, there are no promises that cryptocurrencies will always rebound from their crashes. Crypto is still a very speculative investment, and it may or may not prosper over time. So if you're thinking about investing, keep in mind that there's always the potential that eventually crypto won't be able to come back.
Cryptocurrency is a high-risk investment, and it's proven yet again that it's no stranger to volatility. If you're considering buying, right now may be an excellent moment because prices are cheaper. Just be sure you know what you're getting into since, though crypto might be lucrative, it's not the appropriate investment for everyone.
