Tag Archives: nft

Why Did Crypto Crash?

Posted on by
Reply

  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…

Inflation

  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.

What Is An NFT?

Posted on by
Reply

This question has been cropping up all over Twitter, in conversation, and was even the first question that came up when I started typing into YouTube. So what is an NFT, is this going to be similar to the Dot Com Bubble or the Tulip Mania in 1634? (Yes, this is where Dutch people thought that tulips were super cool, so much so to the point that a tulip bulb could cost 10 times the annual income of a skilled worker.) Let’s dive a little deeper into the internet’s latest craze.

Let’s start with the basics- NFT stands for ‘Non-Fungible Token’. To be honest, the word ‘fungible’ was one that stood out to me, not because I like that word, but because its definition is so specific and complicated that it’s easier to just say ‘replaceable’. Essentially, this means that an NFT is unique, one-of-a-kind, like the Mona Lisa or the Venus De Milo. An NFT is unlike any other. The T, token, is all to do with blockchain. Essentially, blockchain is a public record of transactions; so if one person makes a transaction, everyone else can see it, and it’s almost impossible to change, hack or cheat the system. This kind of technology has become very popular as peoples’ mistrust of centralised banks increases.

This is all well and good, but what do all these concepts have to do with GIFs? Or random pictures online? In theory, this all boils down to human psychology. Who decided that gold was valuable? Or paper money, or fine art, or….anything for that matter? If a large enough group of people decides that something is of value, then it becomes so. A large group of people basically decided that things online (tweets, pictures, music, highlights of an NBA game, you name it) are valuable enough to have a numeric value to them. But, how can someone buy something that doesn’t tangibly exist? Well, with blockchain, we have the technology to be able to put these purchases on public record, so that no one can dispute that a specific person has bought a specific image, or whatever it may be.

Does anyone remember Nyan Cat? That strange little GIF way back when Myspace was a thing? It’s a GIF of a pixelated flying rainbow cat? Well, in February, Nyan Cat’s creator Chris Torres sold the NFT version for roughly $580,000 USD. This was the first ever meme to be sold as an NFT, and I think it does mark a new era where digital artists can have the same recognition as normal ones.

And I know that all this may seem ridiculous to some, ‘how can you own something that doesn’t exist’, but the reality is that our world is now moving online. Back in the 90s, the internet was taking off; people would never have imagined that all our banking can be done online, we can send people money via our phones or that we wouldn’t need a physical credit card or cash to make payments. Isn’t that the same as us thinking that NFTs aren’t real? Money is no longer just tangible cash or card- it’s a figure on our computer screen. So I think it’s only natural for the world of investments to head in this direction. I think that the stage our world is at with NFTs, is the stage we were with the internet in the 90s. It’s a hype right now, the new technology is exciting. But, will it crash or burst like the Dot Com Bubble, the Real Estate Bubble or Tulip Mania? Is this all a fad that will burn out- the brightest star burns quickest…will that be the same for NFTs?