Why Did Crypto Crash?

  It seems that we can’t catch a break this year, markets are down, there’s a war, inflation is up, and now the value of cryptocurrency has plummeted, leaving many feeling disheartened with their investments. But, why did it happen? It’s actually a much broader picture. Let’s do a deep dive…


  The first thing that triggered the crash was investors losing confidence in cryptocurrency and fearing the rise in inflation; inflation has been rising the past few months and apparently has not reached it’s peak yet! This is somewhat due to customer demand after the pandemic, along with Russia invading the Ukraine.

Interest Rates

  The Federal Reserve raised its benchmark interest rate by 0.75%, which has been the biggest increase since 1994. This has had a massive impact on the crypto market. Interest rates make debt more expensive and negatively affect the economic climate; it can decrease the value of asset classes, particularly stocks and of course…cryptocurrency.

Stock Market

  As I previously mentioned, the hike in interest rates and inflation has massively affected the stock market; recently the S&P 500 decline has been even worse than at the height of the pandemic, as it dropped 5.8%. All these factors indicate a global recession is coming, and usually during bear periods, higher risk assets, including crypto, take a hit.

High Yields Were Promo Rates

  Many crypto platforms, such as Celcuis, offered returns of 18% and some platforms even more. These rates of returns are even higher than that of the stock market and could not be sustained year upon year for a long period of time- some were merely promo offers to get their platform some buzz and traction. Many people thought that this was a risk-free yield…definitely not the case! That 18% had to come from somewhere, essentially a borrower, and when more people want to gain these returns instead of borrow…that’s when problems arise.

Energy Crisis

  I’ve already mentioned the Russian-Ukraine crisis but the knock-on effects of the energy crisis have taken its toll on crypto too. If you’ve read my previous articles on cryptocurrency and the environment, you’ll know that mining crypto coins uses up a hell of a lot of energy. The cost of electricity has massively gone up since the Russian sanctions were put in place, meaning that it costs a lot to mine coins. This lowers the profit margins of the cryptocurrencies, depreciating their value.

In Summary

  To summarise, it was not just cryptocurrency that took a hit during this period; global markets are down, and many people are feeling the pinch. Rising living costs often leaves less disposable income for other things, including investment. But remember, historically bear markets (when the market is down) last on average for about 12 months, whereas a bull market on average lasts for 2.7 years…so the good times are mostly longer than the bad.

  One thing to remember is that cryptocurrency is unregulated and financial authorities cannot step in if anything goes wrong. This makes it a higher risk investment; remember that before you invest.

The Pros and Cons of Crypto!

Cryptocurrency….the buzz word that is on everyone’s lips. Cryptocurrency gained popularity a few years ago, but since the pandemic more and more people are interested and wanting to know more on how to earn some money with crypto.

But, is investing in crypto for you? Cryptocurrency is, in short, a digital or virtual currency, which are mostly decentralised and based on blockchain technology. There are many reasons why people use and invest in different coins. Here is a list of some pros and cons of crypto, so that you can make an informed decision as to whether you want to go ahead and buy!



This may be the top reason why people want to invest in cyrpto; cryptocurrency offers much more potential for societal change. All digital currency transactions are stored on the blockchain. This means the data is available for anyone to view at any time. For those who want more transparency in the banking system, this is a very big plus.

Instant Accessibility

There are so many platforms to access digital currencies, such as Binance, Coinbase and Bisq, meaning that you can sell and buy crypto anytime, anywhere. This means that users can make financial decisions in real time, instead of missing a trend because they’re not near a computer. This also means that digital currency is available to everyone, not just investment bankers. For those who want a piece of the pie, but don’t want the fat cats to get any of their money, cryptocurrency is a great option.

Potential of High Returns

From 2016 to December 2020, Bitcoin in USD has compounded at an annualised growth rate of 131.5%. In comparison, the S&P 500 index of large cap US equities has compounded at an annualised growth rate of 14.5%. Clearly, the potential to gain on a crypto investment is a lot higher than traditional investment methods.


Potential of High Losses and Volatility

With high returns comes higher risk. The maximum monthly bitcoin return over the 60 months to end December 2020 was 76.1% and the minimum -37.6%. This shows that users will have to constantly check on their coins- as just as quickly can they make a massive profit, then can also plummet at the same rate. Users have to be able to time the market correctly to avoid major losses. This means that a lot of knowledge and research is needed before hand. Not only this, cryptocurrency aims to be used like you would a dollar. Imagine if you bought a coffee for $4 one day, and the next day the same cup of coffee cost $36…would you buy it? This extreme volatility means that it seems unlikely that crypto will be able to be used as actual currency anytime soon.

Legal Status

The legality of cryptocurrency varies country to country. Some countries, like Saudi Arabia, India, Bolivia and Algeria have all banned the use of crypto. There are many reasons why a country would ban digital currency; cryptocurrency cannot be regulated by the government. If a country wants to maintain financial control, of course they would want to ban it. Because of the anonymity of crypto (more on this later), it can be used as a method of money laundering or tax evasion, which is why some countries ban the use. Laws around digital currency are ever changing, which means that one day it could become illegal in your country, and all that money that you’ve made could be inaccessible.

Ethical Issues

Because cryptocurrencies have no official oversight or regulation, they are wide open to being exploited by criminals as a means to scam unwary investors. A 2019 study showed that 46% of bitcoin transactions are associated with illegal activity. Not only this, it has been proven that crypto is quite detrimental to the environment. Cryptocurrency blocks are added to the blockchains through crypto mining, where high-powered computers solve intricate mathematical puzzles. This technology takes a lot of energy to power these computers. Mining bitcoin now consumes more energy per year than the whole country of Argentina. Bitcoin’s emissions could increase the Earth’s temperature by 2 degrees. This brings to question the sustainability of this industry.

There are of course many more pros and cons to cryptocurrency, but there are too many to mention. Of course, if you want to know more about investing in cryptocurrency, please do your own research.

What are your opinions on cryptocurrency?