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17th June 2022 (6 Topics)

The reasons behind the crashing crypto market

Bitcoin and many other crypto-currencies have been crashing since they hit an all­time high late last year. Bitcoin has lost more than two­thirds of its value since it hit a peak of around $69,000 in November last year and is currently trading at around the $22,000 mark. Ethereum, another cryptocurrency popular among investors, as lost almost 80% from its peak. As a result, the overall market capitalisation of crypto-currencies has dropped under $1 trillion for the first time since January 2021.

Why are crypto-currencies crashing?

  • Fall in prices of stocks and other assets - Most analysts believe that the fall in the price of crypto-currencies is in line with the fall in prices of stocks and other assets as central banks such as the U.S. Federal Reserve tighten monetary policy to fight price rise.
  • Popping of the bubble - Others believe that the crash could also mark the popping of the bubble that has driven the prices of crypto-currencies to stratospheric levels.
  • Driven more by speculative fervour - Sceptics have long argued that the price of crypto-currencies seems driven more by speculative fervour fuelled by easy monetary policy than by any fundamental factors.

How do governments view crypto-currencies?

  • Global View- Many countries have taken several steps to discourage the widespread use of crypto-currencies. While countries such as China and Russia have opted to impose outright bans on crypto-currencies, others such as India have tried to tax and regulate them heavily.
  • Indian View- In India, while the government has not imposed an outright ban on crypto-currencies, the Reserve Bank of India has been quite vocal about the need to ban them completely.
  • Challenge the monopoly -It is no surprise that central banks are wary of private crypto-currencies since they challenge the monopoly that central banks currently enjoy over the money supply of an economy.
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