Bitcoin is down more than 50% from its all-time highs. The collapse of the largest cryptocurrency in the world by capitalization has captured all the attention of this bleeding that has worsened in May. However, the worst part is being taken by a whole series of cryptocurrencies that are in the shadow of bitcoin and that are plummeting more than 80% from the highs. Altcoins are being 'swept away' in this new scenario facing the cryptocurrency market: risk-off, monetary tightening and loss of confidence in some crypto assets.
It is a complete red sea for almost the entire crypto universe, with altcoins like ether, solana and avalanche taking a beating, according to Bloomberg. Traders are partially puzzled. For ethereum, signs of a lack of demand have been building for quite some time, although all eyes have been on bitcoin.
The collapse of TerraUSD
The shock of the collapse of TerraUSD, a blockchain ecosystem that has kicked off one of the biggest experiments in decentralized finance (a stablecoin powered by an algorithm), has sparked wild contagion this month in an already bearish market. , even putting Tether, the largest stablecoin on the market, under pressure. The collapse of this cryptocurrency has been the last straw for a market that had already been suffering from the harassment of investors.
As explained by Bloomberg, investors who bet on the DeFi system (decentralized finance) are beginning to get impatient with the unfulfilled promises of this very disruptive technology. A failure in the process to make the Ethereum network consume less power has added to previous concerns.
The bearish sentiment is still the predominant issue for cryptocurrencies, said Edward Moya, senior market analyst at Oanda. This expert believes that the growing list of ethereum competitors could make the fallout from unexpected problems in its upgrade, known as Merge, particularly intense.
Ether is plummeting more than 7% this Friday and has fallen to the $1,780 area (at its highs it flirted with $5,000). The fall in this 2022 exceeds 50%, but the blow from its historical highs is much greater. It is well below the key threshold of $2,000 that it needs to resume the uptrend. Other tokens linked to popular protocols with decentralized finance projects like Avalanche, Solana and Polkadot are also plummeting, down between 5% and 10% this Friday.
If the altcoin analysis is done in the last seven days, the scenario is catastrophic. Cardano has already dropped 20%, ether 12%, avalanche 23%... Some memes are starting to become popular on social networks comparing the situation of investors in cryptos a few months ago (rich, flying in first class...) and the current one (impoverished and flying on Ryanair).
DeFi is under pressure
DeFi developers are trying to dust themselves off after the collapse of TerraUSD has halved the capitalization of the sector. To all this we must add the new macroeconomic scenario, which does not help either. The tightening of global monetary policy, the withdrawal of some fiscal stimuli and the fear of a recession are hitting the cryptocurrency market, considered one of the most risky markets, hard.
The Ethereum blockchain, which plays a crucial role in the network's long-awaited technical upgrade, experienced a potential security risk called on Wednesday.
Part of the fall of ether is due to the problem of the reorganization of its network, which could delay the expected merger (this process would culminate in the creation of the Beacon Chain of Ethereum 2.0, a network that would work with proof of stake) " says Noelle Acheson, director of market research for Genesis Global Trading. When this is mixed against the backdrop of the global macro environment, Semir Gabeljic, an economist at Pantera, believes the resulting nerves turn into "bad business.
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wow.. what will happen next?
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