‘Bitcoin was, very simply, a new way of creating, holding, and sending money.

Bitcoins were not like dollars and euros, which are created by central banks and held and transferred by big, powerful financial institutions. This was a currency created and sustained by its users, with new money slowly distributed to the people who helped support the network.’

Nathaniel Popper, Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money

The first use of Bitcoin was to buy pizza and the cryptocurrency was adopted mainly by blockchain enthusiasts, interested in the technology and in how to make payments work faster, cheaper, and free from geopolitics. Gradually, exchanges, companies, banks, hedge funds, and mutual funds have also become interested in crypto, with big banks experimenting with cryptocurrency offerings and lobbying regulators to create rules that work in the banks’ favour. In 2019, JPMorgan even started its digital currency. Governments got also involved – in 2021 El Salvador started to accept Bitcoin as legal tender.

But not everyone is enthusiastic about crypto, and they have some good reasons why – the currency is volatile, implies monetary risks, is associated with money laundering, and the list can continue. Adopting Bitcoin as legal tender, at a country level is seen by the International Monetary Fund (IMF) as too risky. The fund concluded that move from El Salvador ‘entails large risks for financial and market integrity, financial stability and consumer protection’.

And was it right? Let’s unfold what has been happening in the crypto and financial markets in the last week to see what crypto implications are on international markets.

At the beginning of May, Bitcoin, the world’s most valuable cryptocurrency plunged. According to slate.com, nearly 40% of Bitcoin holders have lost all the money they had invested in the currency, as the value of a single coin has dropped below even last year’s post-crash July low. Other cryptocurrencies, sometimes referred to as altcoins, have been hit hard too. A large algorithmic stablecoin called UST, designed to be pegged to the dollar has failed and has been trading at 50 cents over the last few days. A related pure cryptocoin called Luna has also collapsed, going from USD 60 per coin two days ago to less than one dollar on May 12. Some say that this is one of the biggest collapses in crypto history, with over USD 50 billion in total value destroyed in a few days.

As a result, cryptocurrencies prove to be risky and susceptible to the same concerns as stocks, dragging down the Dow, S&P 500, and Nasdaq indexes.

What’s going on here: is crypto just an experiment or a long-term financial tool? Should they be used in other means than investment? How does crypto influence macroeconomics? How should regulators react? To answer some of the concerns and implications raised by the current crypto crash, we have invited crypto experts, investors, market participants, and crypto providers to share their expertise.

What could be the explanations behind the massive drop in the value of Bitcoin, Ethereum, and other cryptocurrencies over the past few months?

Magnus Carter (MC), author

In his new book, Making More Money for You! Decrypting Cryptocurrency: Riding the Data Path to Financial Freedom , Magnus provides detailed guidance that explains virtually everything about the world of cryptocurrency, from the different types of cryptocurrencies and blockchains to a step-by-step approach for making wise investment decisions.

In these uncertain times investing has been the option for many across the world to try and make a profit. This environment is truly country neutral as it pertains to it knowing no bounds on a map. In an environment like this, there are countless explanations for how this investment performs. I am limited on the space for this article, so I have enclosed a few of them: inexperienced investors, a market that never closes, instability in political realms, and constant mining to introduce more currency than there is demand.

Douwe Lycklama (DL), Co-founder, INNOPAY

Douwe Lycklama co-founded INNOPAY in 2002 and is one of the thought leaders of digital transactions, like paying, billing, identity, data sharing, and the applicable regulation.

The massive drop in cryptos should be seen against the ‘risk-off’ macrotrend of the past six months where investors collectively deem assets too risky and prefer cash. The accelerating event was the large interest rate increases by central banks, to combat inflation. As a result, we see the US Dollar rising against all currencies, […]

source Crypto – friend or foe? Explaining the latest crypto crash

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