Even seemingly reliable stablecoin TerraUSD has plunged as concerns quickly developed about its solvency, and the Treasury Department is citing the risks that cryptocurrencies could cause to the broader economy, calling for heavier regulation of them.
But less than three months later the cryptocurrency had lost nearly half its value, plummeting to around $35,000.
That volatility attracts traders looking to make a profit, but it’s nerve-wracking, especially for new investors looking to get started.
Whether you decide to sell your cryptocurrency or see a dip as an opportunity to buy more, you need to act with a cool head.
The answer to these questions can help guide you to the proper decision.
China’s move to ban financial institutions from providing crypto-related services was a further clampdown, since the country had already banned crypto exchanges in 2017, though it hadn’t prohibited individuals from owning cryptocurrencies.
In May 2022, the stablecoin TerraUSD plummeted as traders engaged in an old-fashioned “bank run,” as they feared that it didn’t have the crypto assets to back its peg to the dollar.
The furor around the Coinbase IPO in 2021 helped drive positive sentiment to crypto, while the reduction in monetary stimulus drove pessimism at the end of 2021 and start of 2022.
So when you have an asset that’s driven by sentiment, the emotions of traders propel the market.
This volatility is exactly what draws professional traders, who use high-powered algorithms to make sophisticated trades, something that “mom and pop” traders don’t typically have the advantage of using.
India had been mulling the idea of banning cryptocurrency, while the Russian central bank has also voiced opposition to it, too.
How other major countries proceed remains to be seen, but it’s clear that cryptocurrencies face real threats in the form of regulation, including regulation that could literally put them out of business.
Therefore, it’s not out of the question that the utopian dreams of crypto purveyors are simply legislated out of existence.
Another risk: because of their volatility, many cryptocurrencies are mostly unusable as currency and it’s “being sold to people who have no intention of using it” as currency, as I discussed on Cheddar TV.
Whichever way you go, you’ll want an action plan that reflects your view on the potential risks and opportunities of cryptocurrencies.
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