November 2021 is going to be remembered as the best month for crypto so far. Bitcoin
crossed 67K dollars, almost crossing the 70K dollar mark. Et hereum crossed almost 5K dollars,
and the entire crypto market value crossed 3 trillion dollars. Early investors definitely
made fortunes. However, those who have purchased the coin at the peak have seen their investments
only going down. Bitcoin price fell to 18K dollars from its November peak, whipping over
70 percent of the wealth. In fact, the total value of crypto has fallen by 2/3, from 3
trillion dollars to just 980 billion dollars. People lost fortunes, especially retail investors
who purchased popular coins in hopes of making some extra income. That's like if the stock
market lost over 60 trillion dollars worth of value, falling from 93 trillion dollars
to just 30 trillion dollars. The world would be in absolute shock. But the crypto market
is just a small fraction of the stock market, so it's not causing such a huge crisis that
could shake countries like the 1929 stock market crash, the worst in history, as the
market fell 89% from its peak, which led to the great depression that lasts over 10 years
and it took a world war for the country to get out of the crisis.
If the market had fallen so much before the recession started, what’s going to happen
next since we are officially entering a recession? Interest rate hikes are most likely not over
yet. They will continue until they cross 3 or 3.5 percent since that looks like the number
that will bring down the demand enough to stop the highest inflation in 4 decades. A
recession is bad, but hyperinflation is much worse since the only way to get out of it
will be by introducing a new currency. Yes, all of your US dollars will be worthless if
hyperinflation happens. But it's not just the US that's hiking rates.
The bank of England and other central banks are hiking rates and warning of a coming recession.
The question that many are wondering is - if a 0.5 increase in interest rates crashed some
coins like Terra Luna, how will the recession impact the crypto market? Which crypto coins
will survive the storm? And how long will the storm last?
We will answer all of these questions and many more, but before we do that, give this
video a thumbs up and let’s dive in.
The biggest sign of a recession is probably that corporations are laying off workers.
Coinbase, one of the most popular crypto exchanges, laid off t 18% of its workforce, firing over
1,180 employees, and warned investors that a potential recession could lead to a prolonged
bear market for cryptocurrencies. Gemini, another popular exchange, said it would cut
about 10% of its 1,000 employees. Other exchanges and crypto companies said that they are also
laying off 10 or 20 percent of their workforce, preparing for a long recession.
After what happened to Terra Luna, investors got scared. The Terra (LUNA) crypto token
first crashed from $120 to $0.02, a 99.9% correction, of which 99% was within 48 hours
of a black swan event on May 11th – 12th. The coin somehow managed to drop further,
reaching $0.0001. But the big deal was that alongside with it crashed TerraClassicUSD,
which is a stablecoin by 99% as well. The name itself should tell you everything you
need to know. Unlike other crypto coins, a stablecoin is pegged to the dollar, meaning
one stable coin equals one US dollar. There are many reasons why it crashed, but the primary
reason is that the fed raised the rates, and investors got scared and sold off their coins
crashing the price in the process. That’s a clear indication that no matter ho w big
the crypto has become - investors don’t trust crypto enough to keep holding crypto
when a storm hits the economy. Crypto has come a long way where institutional
investors have entreated the game, but that’s not enough since the industry is still full
of scams and worthless projects. Many cryptocurrencies have little purpose other than making money
for their developers, which means investors need to be selective. The goal of crypto was
to decentralize the financial system, but how can you use something as a currency when
it's so volatile? In fact, there are over 12K cryptocurrencies out there. A currency
is a Medium of exchange, but these cryptocurrencies don’t have anything to do with currencies
besides the name. The whole purpose behind them is to hype them until everyone starts
buying, hopping that this is their opportunity to get rich and then sell off once the price
spikes making developers and early investors rich. Everyone else loses since the cryptocurrency
doesn't serve any purpose. Technically, it can be used as a currency, but it's too small
and no one trusts that it will not go bankrupt the next day. In 2021 close to US$14 billion was
scammed from investors using cryptocurrencies. The developers would lure investors with fancy
words such as blockchain or defi, I am going to get a lot of hate for saying this, but
it's a fact. You can’t hate me for saying the truth even if you don’t like that. I
have made a video a year ago saying what exactly will happen to crypto once the fed raises
the rates, and that's what has been happening since the fed began hiking the rates. Squid
coin is just one out of many examples where developers took advances out of the Netflix
show that instantly became popular worldwide. Reports show that more than 46K Americans
were scammed last year with crypt scams. And that's just Americans. If we take the entire
world, that number is definitely higher. So as long as the industry is growing based
on the greater fool theory, it will not be stable enough for investors to trust their
investments in periods of uncertainty. The great fool theory basically says that one
can sometimes make money through the purchase of overvalued assets because someone else
will pay an even higher price later for it. We hear so many predictions of where the future
price of different crypto coins but none of them are based on anything real since in 99
percent of cases, it's pomp and dump. It’s important to understand this because
recessions expose everyone. There are no cheap money to borrow, and pretend like you have
developed a revolutionary technology that's in high demand with fancy words such as blockchain
or defi or decentralized or whatever else. But this is not the first time crypto is going
through a storm. The last storm was from 2018 to 2020, when the price of bitcoin dropped
from almost 19,600 USD to as little as $3,185. That's an 85 percent and for most of 2018
and 19, the price remained around 3 to 6K.
However, the situation is different this time. We have institutional investors who are still
holding a lot of cryptos. Chainanalysis very roughly estimates that institutional investors
(anyone with more than $10mn to play with) accounted for 44 percent of total crypto trading
at the end of the second quarter of 2021, up from 8 percent less than a year before.
The storm will most likely last around 2 years as well, since the fed will most likely won’t
lower the rates for another 2 years. This is just a prediction since everything depends
on inflation. Most cryptos are definitely going to go bankrupt
since it won’t make sense for miners to keep mining the coin if it's economically
unfeasible, especially since we are having an energy crisis that could get much worse
by winter. Its really difficult to predict what is going to be the bottom, but if it
falls by 85 percent as it did during the last crypt storm, it might fall as low as 10K dollars
during the next 12 months. Crypto companies already have heavy losses.
Coinbase, one of the largest cryptocurrency exchanges, reported a $430 million quarterly
loss and said it had lost more than two million active users.
And that's just the beginning. Crypto lenders such as Celsius and Babel Finance paused withdrawals
and transfers between customer accounts. Other firms are declaring bankruptcies for failing
to meet their debt obligations which tell a lot about how these companies were simply
operating on cheap cash that was available for the last 2 years.
The storm has just started, so the real challenge is still ahead of us.
Thanks for watching and see you in the next one.