Elain Brown Tech 05.12.2022 06:May AM EDT

Here's a 'Crypto Crash' Crash Course for Those Wondering How Bitcoin Continues To Plummet

Cryptocurrency market continues to plummet for several days now. Just recently, the largest and the most recognized crypto in the world, Bitcoin, has continued to go down in market value.

Some might continue to see a correlated downward trend with both the crypto and stock market industry.

Bitcoin Plummets: Volatility & Inflation

Bitcoin's current price today, unfortunately, has reached its lowest since the beginning of the year, at $27,208.

According to CoinDesk, last year, on Nov.9, 2021, the price of Bitcoin reached its all time high at $67,553. However, during Jan.1, 2022, Bitcoin price was at $46,208. Comparing the price of Bitcoin in Jan. 1, 2022, and price of Bitcoin today, shows a massive gap, with a decline of almost 41%.

As mentioned, this is by far, the lowest Bitcoin has ever been valued. However, given the nature of cryptocurrency, which includes Bitcoin, has always been publicly known to be volatile. For sure, newbie investors and traders know this as numerous experts appearing on TV, and crypto enthusiasts on different social media platforms, have all warned the people about the volatile nature of crypto.

The most recent time that the price of Bitcoin was unable to move above $40,000 was at the beginning of March. However, after President Joe Biden signed a comprehensive executive order on cryptocurrencies, the price of Bitcoin skyrocketed by ten percent, reaching over $42,000.

In the executive order that President Biden issued, the government was instructed to formulate a strategy for the regulation of cryptocurrencies and to consider the creation of a central bank digital currency. It was the first time that the White House has taken any real action to regulate bitcoin.

Stablecoin Destabilizes

Bitcoin's value comes from the fact that there are only so many coins in the network and the number of people who own them. Stablecoins, on the other hand, are types of digital currency whose value is tied to a legal currency like the U.S. dollar. Some stablecoins use algorithms to control their money supply and keep their value close to that of the dollar.

As an example, the two coins are made by the crypto project Terra. According to CNBC, the TerraUSD coin is a stablecoin, and its sister token, Luna, has a price that changes based on demand. The former is supposed to always be worth $1, but it dropped to 60 cents on Monday and all the way down to 26 cents on Wednesday. Meanwhile, Luna has lost up to 96 percent of its value over the past week.

How did Stablecoins Become Unstable?

According to Slate, it all started over the weekend on Anchor, the primary trading platform for these cryptocurrencies. Anchor encouraged its users to trade their Terra and Luna coins on its platform by providing lucrative incentives. Traders and investors were fast enough to grab the chance and head to Anchor.

As a result, Anchor was able to control the majority of the available supply of these coins. After the Federal Reserve stated that it will raise interest rates and traders promptly began withdrawing their currencies in large quantities, billions of dollars worth of value immediately left Anchor all at once.

This caused even more people to lose faith in the Terra platform as a whole; as the price of Luna went down, so did the price of TerraUSD. The Chief Executive Officer of the parent business of Terra used emergency reserves of Bitcoin in an effort to try to prop up the value of the stablecoins, but it was unsuccessful.

A loss of faith in a stablecoin, which is the one sort of cryptocurrency that is never supposed to be volatile, does not exactly inspire confidence in other currencies. Stablecoins are cryptocurrencies that are designed to be less volatile than other cryptocurrencies.

Furthermore, there are also significant factors why the global stock and cryptocurrency market are plummeting in performance. The world is still gearing toward causing more damage due to the ongoing COVID-19 pandemic and at the same time trying to recover from the economic loss when the pandemic was still hot. In addition, the country suffers from an increased inflation rate.

Aside from that, the crypto market has been dominated by multiple crypto meme coins that are extremely volatile and under-controlled, making other people lose money just as quickly as they gained it.

On top of that, there are wide-scale phishing, hacking, and data breaches that cause people to lose money. And lastly, the ongoing turmoil between Russia and Ukraine.