Investors Fear the Bubble Has Finally Burst

The crypto bubble burst… but is it a sign of a stock market crash to come?

Editorial Staff: May 12, 2022

• Bitcoin has also plunged 11.24 percent as investors suffer heavy losses

• Ethereum has dropped 20 percent in 24 hours as part of the latest crypto crash

• Luna, another prominent cryptocurrency, lost almost all of its value overnight

• Despite the downturn, traditional tech stocks are faring even worse

• Amazon has lost 30 percent of its value in just one month of trading

Is your money safe? In volatile markets, like we are experiencing today and the fact that many investors who invested in the crypto market (myself included) in hopes of higher returns watch our investment plummet I can't help but be reminded me of the 401K Meltdown in 2009 where investors watched their 401K's literally evaporate overnight in the last 2 quarters of 2008 into 2009 with losses estimated at $2.4 Trillion Dollars.

Today's story is a sad reality that opens up the eyes of Cryptocurrency investors worldwide. As digital investors lose fortunes as Bitcoin plunged 11.24%, Ethereum dropped 20% of its value in 24 hours, Luna drops 98% and Coinbase one of the best-known Crypto Wallets warns customers may lose ALL their money. But investment always comes with risk.

Digital currencies are plunging in value this morning in a so-called 'crypto winter' that has lost investors billions and is fueling fears that it is the harbinger of a wider stock market crash. As the Fed's recent interest rate increase fuels more market volatility.

The digital downturn that is hammering investors who bought during the Covid years when the Fed had maintained historic low rates investors turned to the CryptoCurrencies in hopes of higher than market gains.

But the Cryptocurrencies have sharply declined in value during the past few days as fears for the global economy spread and investors start to sell off the risky assets.

Of course, this uncertainty for investors is being felt even in more traditional stocks which are also hurting, with US tech stocks plunging in recent weeks including Amazon which has fallen 30 percent in a month.

The FTSE 100 was down 2.5 percent this morning after official figures showed the UK economy growing slower than expected in the first quarter - and going into reverse in the final month and 2 percent, respectively.

Many amateur investors took to buying stocks and digital currencies during the Covid pandemic and made money because values were generally rising in the bear market.

But the sad reality we face today is just how safe our investments were in these volatile currencies as Ethereum has now lost more than half of its value this year, Bitcoin has shed a third of its value since January, and Luna with 98 percent of its value wiped out overnight with suicide hotlines pinned to the currency's Reddit page as a result. Remind you of the "Great Depression"?

Popular digital currency exchange Coinbase warned users could lose all of their money if the company goes bankrupt - after the downturn led to a 27 percent fall in its share price. That would really put stress on a lot of investors.

As skyrocketing inflation leads to a rise in interest rates in order to safeguard savings, these assets are being sold in favor of safer government bonds - which in such situations will provide better returns.

The Bank of England pushed up interest rates by 0.25 percent to a 13-year high of 1 percent on May 5. The Federal Reserve also raised its interest rates to 1 percent on May 4 - with further rises expected to fend off the worst effect of inflation which runs rampant now.

The NASDAQ experienced its sharpest one-day fall since June 2020 earlier this week and the crypto hit implies an increasing integration between crypto and traditional markets.

The index which features several high-profile tech companies finished May 5 trading at $12,317.69 with shopping sites such as Etsy dropping 16.8 percent and eBay dropping 11.7 percent driving the fall after announcing lower than expected revenue estimates.

Previously high-flying tech stocks have begun to dramatically fall in value in recent months - fuelling fears of a broader economic crash and making investors less likely to purchase assets.

Elon Musk's Tesla has fallen 36 percent in the last month amid news of the eccentric CEO's attempts to buy Twitter. The electric car manufacturer is now trading at $734 (£600), a dramatic drop from $1145.45 (£937.69) a month ago.

Musk has been a vocal proponent of cryptocurrencies, has heavily influenced the prices of Dogecoin and Bitcoin, and at one point had said the company would accept Bitcoin for purchasing its cars before axing plans. His frequent tweets on Dogecoin, including the one where he called it the 'people's crypto', have turned the once-obscure digital currency, which began as a social media joke, into a speculator's dream. With Dogecoin's price surging by about 4,000 percent in 2021, after Musk posted a flurry of memes promoting the joke currency.

Delivery giant Amazon has seen a 30 percent drop in its price since April 11 with the stock hitting $2110.80 today - down from $3020.56. These types of losses fueled fears that the 'dot-com bubble burst' of the early 2000s could be about to happen once again. In the late 1990s, the increase in computer and internet access led to large-scale speculative trading in internet companies. This interest resulted in companies with a '.com' suffix being valued very highly. Even grossly over-valued. The facts remain of course that after the US Federal Reserve increased interest rates after the end of the 1990s boom, speculative trading dipped and caused the dot-com bubble to burst, sending values plummeting and crashing the once explosive market segments.

Today we see similarities with the amount of business done by crypto exchanges, which hold the 'blockchain' ledgers that record transactions, is already dropping heavily.

Despite the outlook, crypto traders on social media have taken to the platforms to poke fun at the crash, encourage others not to sell, and in some cases grieve their losses.

The acronym 'HODL' - meaning Hold On for Dear Life - has been used in several of these memes after it gained popularity in previous crashes as traders bet their investments on the coins making a recovery. But that future is to say the best-case scenario is dim at best. Could the bubble finally have burst?

Popular cryptocurrency Luna lost its pegging to the dollar this week, falling below $1 per coin, causing prices to drop dramatically as the industry panicked (similar to a run on a bank).

The coin, also called Terra, lost 98 percent of its value overnight. 'The Terra incident is causing an industry-based panic, as Terra is the world's third-biggest stable coin,' said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.

But TerraUSD 'couldn't hold its promise to maintain a stable value in terms of U.S. dollars.'

The crypto downturn has wiped more than $1.5trillion of value from the markets but investors will still be hoping that prices will be able to recover as they have done in the past. However, unlike previous crashes, experts think that this latest drop in prices could prove permanent due to broader fears about the global recession.

It is a bleak day in the eyes of many investors why not let us know how you are weathering the Crypto Storm by commenting below.