How More Than $1 Trillion of Crypto Vanished in Just Six Months

Traders’ flight away from risky investments has halved the price of bitcoin and other cryptocurrencies, wiping out more than $1 trillion in digital currencies since November.

Wild volatility is fairly common with cryptocurrencies, but even seasoned investors were reeling as bitcoin dropped 29% in a 7-day losing streak that just ended as a stablecoin – part of the crypto world advertised its stability – crashed unexpectedly.

Investors are staring at an inflection point in financial markets as interest rates rise and inflation rages, and they are responding by selling risky assets.

For crypto, it’s been a volatile journey into the deep.

Last year, cryptocurrencies caught fire and appear to have become more legitimate after years of being seen as a speculative, fringe product. Tesla Inc.

TSLA -0.82%

said it bought $1.5 billion in bitcoin, pushing the price higher. Coinbase Global Inc.

COIN 8.90%

listed its shares in its first large bitcoin-focused public offering.

In November, bitcoin and ethereum, two of the most popular cryptocurrencies, hit all-time highs. The value of Bitcoin at 5pm on November 9 is $67,802.30; ethereum worth $4,800. They are now 58% and 60% down from those levels, respectively.

Source: CoinDesk (bitcoin); Kraken (ethereum, dogecoin); CoinMarketCap (Shiba Inu)

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Source: CoinDesk (bitcoin); Kraken (ethereum, dogecoin); CoinMarketCap (Shiba Inu)

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Source: CoinDesk (bitcoin); Kraken (ethereum, dogecoin); CoinMarketCap (Shiba Inu)

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Source: CoinDesk (bitcoin); Kraken (ethereum, dogecoin); CoinMarketCap (Shiba Inu)

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Source: CoinDesk (bitcoin); Kraken (ethereum, dogecoin); CoinMarketCap (Shiba Inu)

Cryptocurrencies fell even before last week, victims of sky-high inflation. Bitcoin and other digital currencies have been considered an inflation hedge. But the ripple effect played out the other way around. Rising inflation is prompting the Federal Reserve to raise interest rates faster, which investors believe will slow economic growth. The result: Investors are unloading risky assets, including cryptocurrencies.

Also exacerbating the damage is that cryptocurrency trading, originally an individual investor’s game, is now dominated by institutional investors such as hedge funds. Those looking for diversification in crypto have been misled.

When prices drop, both individual and institutional investors bow. When Coinbase reported its first-quarter results late Tuesday, it revealed that it was bleeding users. At the end of Thursday’s trading session, shares of Coinbase were 82% below their closing levels after the first trading day just over a year ago.

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https://www.wsj.com/articles/how-more-than-1-trillion-of-crypto-vanished-in-just-six-months-11652434202?mod=rss_markets_main How More Than $1 Trillion of Crypto Vanished in Just Six Months

Edmund DeMarche

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