Cryptocurrencies fall: why are they devaluing and what is the expectation for the future?

Many investors, who once saw cryptocurrencies on a high rise, today wonder why they have been falling so much in recent months. Fact is that the main currencies register a fall in 2022. The largest of them, Bitcoin, had retreated more than 54% until June, for example. A very different scenario from the one seen at the end of last year, when it was worth more than US$ 67, this being its all-time high.

This reality is not exclusive to bitcoin alone, as the fall in cryptocurrencies also affects other currencies, which have recorded drops between 60% and 90%. The value of Ethereum, for example, by June, had fallen by 67%. But after all, why are cryptocurrencies falling so much? Is it possible that one day they will return to a profitable level? We answer these and other questions with the help of experts in this field!

Falling video card cryptocurrencies

Between July and August of this year, the Ethereum Classic (ETC)) presented a appreciation of 233%, rising more than the Ethereum (ETH). The phenomenon was due to the presumption that the ETC would become the benchmark in the mining industry after the The Merge — update performed by currency —, gaining support from giants like Antpool. However, the change does not seem to have had much of an effect, and the ETC is losing value throughout the month.

Similarly, other cryptocurrencies that promised to be a haven for miners, such as Ergo (ERG), which even showed an advance, currently accumulates a fall of about 20%. The same is true of other video card mineable cryptocurrencies, such as Firo (FIRO), Grin (GRIN), Quark (QRK), Flux (FLUX), Conflux (CFX) and so many others. already the ETHPoW (ETHW), in addition to the fall is also presenting technical problems.

According to the site WhatToMine, no miner paying more than BRL 0,50 per kWh is profiting from mining. As a result, the business becomes unprofitable for miners who have other operating costs, such as electricity, for example. Therefore, only those who manage to reduce such costs will remain in the mining market, something difficult in Brazil. As a consequence, graphics cards are expected to flood the markets in the coming days with many miners dropping out.

What explains the fall of cryptocurrencies?

There are numerous factors that have influenced the crypto market worldwide. Among them are the direct influence of rising inflation, commodity prices, the difficulty of regulating currencies, the war between Ukraine and Russia and the threat of conflict in Taiwan. Although they have their own dynamics, these currencies are increasingly linked to the global investment market.

Inflation and commodity prices

The growing inflation, which affects several countries around the world, becoming a global problem, is one of the factors that make investors seek more conservative investments. Added to this is the high price of commodities. To give you an idea, US inflation reached 9,1% in June 2022, the biggest in 41 years. This caused the Federal Reserve to raise the US interest rate to the range of 3% to 3,25% per year. It is the highest value since 1994.

War between Russia and Ukraine

The war between Russia and Ukraine is another factor that has contributed to the fall of cryptocurrencies. This is due to the geopolitical instability around the world and, mainly, because the two countries are important suppliers of commodities. the director of Brazilian Association of Cryptoeconomics (Abcripto), Bernardo Srur, further explained that the population of the conflict region sought cryptocurrencies, massively, to protect the heritage.

Threats in Taiwan

Another geopolitical influence on the price of cryptocurrencies is the threat of conflict between the United States and China, following the controversial visit of Nancy Pelosi, Speaker of the US House, to Taiwan. At the time, the Chinese government had said that going to the Taiwanese country could trigger "consequences" and warned the US that “don't play with fire".

The future of cryptocurrencies

Experts indicate that even if currencies recover, it will take at least six months for them to show steady growth. One part also argues that there will be a recovery of bitcoin in the second half of 2022. The other believes that bitcoin will not have a significant appreciation in the coming months.

In the case of Ethereum, its valuation will directly depend on the success of its software update implemented as of last September 15th. Expert guidance is for investors to remain cautious and fractionate the entry, as 2022 should still be a warm year. Digital currencies have already gone through other moments called “crypto winter” and have been revalued after periods of correction.

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Sources: WhatToMine, Time.