Bitcoin’s retracement to below $20,000 on Wednesday [before rebounding to $21k] shows there is still a lot more pain to come in the crypto markets, if not in all markets.
This is thanks in large part to [US banking system] the Federal Reserve once again leading the news flow by indicating that the US may not, in fact, be able to avoid a recession.
As it turns out, the ‘transitory’ inflation [its chair] Jerome Powell dismissed a few weeks ago is in fact a more sticky and crippling situation that more interest rate hikes will be needed to tackle.
It’s a precarious situation that will lead to the toppling of a very shaky House of Cards in many areas of cryptocurrency. While we’ve seen a lot of unwinding in the past few weeks, which has been brutal to say the very least, investors are still highly leveraged.
As we’ve seen, it doesn’t take too much for margin calls to kick in and mass-selling events to happen. This is what we saw with UST, and is continuing to play out. Right now, we are nowhere near the bottom.
All of this should and really MUST prove a lesson to the cryptocurrency world if it is to survive and thrive through this crash. We have to remember that crypto was founded to be a decentralised monetary system designed by the people for the people.
It has since turned into somewhat of a centralised monolith, with a few massive companies now dominating trade flow. The emergence of decentralised finance in 2020 went some way to changing this, but it is still a tiny portion of the overall market and continues to face its own challenges in terms of technological soundness.
Nonetheless, decentralisation is the future. Right now we’re seeing centralised giants under fire – Celsius, of course – with others set to potentially follow in its footsteps. Even UST was not an entirely decentralised endeavour, with one very big personality and a few whales dictating its rise and ultimate fall.
As long as these big centralised entities are led by people and companies interested only in themselves, crypto will not reach its ultimate goal. Nor will crypto reach its ultimate goal if we continue to use the US dollar – which is facing its own dramas right now – as the only measure of value.
The NFT arena presents some light at the end of the tunnel here, as this is an area that has transitioned almost entirely to valuing everything that it does in ETH. In this space, the psychological disconnect allows participants to distance themselves from what’s going on in the main markets and the bigger cryptocurrencies.
It’s an interesting development that we should all be watching really closely. In the meantime, the majority of investors should continue to buckle up and expect more drama at least until the summer is over.