Bitcoin, Ether Crash in Minutes

As today’s crypto carnage rounds off an already disastrous week, investors’ hopes that a gain in the price of major crypto currencies might be maintained have been dashed.

Bitcoin Reaches A Three-Week Low

Bitcoin’s price fell by more than 5% in a couple of minutes, bringing it to its lowest point in the last three weeks. Ether’s price also fell precipitously. It is not exhibiting the pattern of a flash crash because the assets did not instantly rebound strongly but instead dropped much deeper in the hours that followed. This indicates that it did not occur as a flash crash. In the midst of concerns that the cryptocurrency market is heading toward a cold spell, this brisk wind has begun to blow. Even though Bitcoin is trading around $21,800, which is a considerable distance above its lows in June of under $19,000, volatility is once again wreaking havoc on the market.

Letters from hedge funds, conferences, and more in the second quarter of 2022

After minutes from a meeting of the US Federal Reserve were made public, indicating that policymakers intended to continue steadfastly on their path of monetary tightening, speculators pulled back from highly risky assets, which led to a decline in the value of cryptocurrencies. This occurred as investors anticipated that higher interest rates would be maintained for a much longer period of time.

The Proof of Stake System Used by Ether

Ether had been greatly outperforming Bitcoin prior to the speculation about the benefits of the major update that is being planned for the Ethereum blockchain, which is being referred to as the ‘Merge.’ There has been a lot of talk about the upcoming modification to the way that Ether transactions are validated, which is scheduled to take place in the middle of September. The network is transitioning to a mechanism known as “proof of stake,” which has recently emerged as a viable alternative to crypto mining, often known as the “proof of work” procedure. By staking, users are not more likely to be randomly selected to add blocks to the blockchain if they generate more computer power; rather, users are more likely to be randomly selected to add blocks if they lock away more currency. Miners are more likely to add blocks to the blockchain if they generate more computer power. Despite the fact that some people see the proof of stake mechanism as a method for the cryptocurrency world to reduce its environmental imprint and use less energy, the improvement has not protected the currency from the enormous swings in price that are occurring today.

The most recent unfortunate twist in the wheel of fortune indicates that speculation in cryptocurrency markets is fraught with an exceptionally high level of danger and is not appropriate for the great majority of people. The value of cryptocurrencies is completely driven by the expectation that in the not too distant future, they will play a significant part in the overall functioning of the financial system. Because of this, it is hard to assign a reasonable assessment to their current or future price or to make a prediction regarding any of these prices. Due to the extremely restricted nature of their use as a medium of exchange, the price of these cryptocurrencies will continue to be determined solely by market speculation for as long as they remain unaccepted by the general public. Given the current state of investor confidence, this proposition appears to be even more precarious. Expect the volatility to continue as the liquidity that was washing around financial markets drains as a result of additional increases in interest rates. There may be speculators waiting in the wings to buy what they may regard as simply a massive temporary dip, but expect the volatility to continue.

This article was written by Susannah Streeter, a senior investment and markets analyst at Hargreaves Lansdown.

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