By establishing a decentralized digital currency system that provides secure and transparent transactions, cryptocurrency has transformed the financial environment. Moreover, with the introduction of cryptocurrencies into the market, the globe is witnessing a transition from traditional currency to a more borderless financial ecosystem. However, recent events related to Binance and Coinbase indicate a crypto crisis. Nonetheless, the crypto problem is not the result of a single reason but a combination of key incidents that led to the crypto crisis in current times.
Near Collapse of Terra Due to Losing Its Dollar Peg
What Happened:
In the first quarter of 2022, the crypto market saw its most recent collapse. Almost all popular cryptocurrencies experienced double-digit value falls. During that time, panic selling by investors led to a drop in the value of many digital assets. Bitcoin‘s value dipped by 11%, while ether lost 20%. However, the most affected was Terra. As a stablecoin designed to maintain a relatively stable value compared to fiat currencies like the US dollar, Terra lost over 26% of its value during the crypto meltdown. The circumstances were so dire that many predicted the end of Terra.
Impact:
Investors who held Terra’s native cryptocurrency faced substantial losses as its value plummeted. Many individuals and entities that had invested in Terra or its associated projects experienced financial setbacks and potential disruptions to their business operations.
Date:
May 9th, 2022
Babel Finance Announcing Withdrawal Restrictions
What Happened:
Babel Finance, a leading cryptocurrency institution, ordered the restriction of withdrawals on its platform. The CEO of Babel Finance, Del Wang, stated that implementing withdrawal restrictions aimed to mitigate potential risks associated with fund movements and protect the interests of its users. Babel Finance took this step as the value of cryptocurrencies gradually fell.
Impact:
Users of Babel Finance were greatly affected by the platform’s withdrawal restrictions. They were unable to manage their cryptocurrency holdings, causing significant inconvenience even in situations of immediate financial needs or trading plans. Moreover, this unexpected step of withdrawal restrictions affected the overall liquidity and trading activity within the cryptocurrency market, ultimately leading to the crypto crisis.
Date:
June 17th, 2022
Unexpected Collapse of FTX
What Happened:
FTX, the Bahamas-based crypto trading platform and the third-largest platform in terms of crypto exchange, experienced an unexpected collapse. The situation changed abruptly in the first week of November. Binance, a popular crypto exchange platform and a leading investor in FTX, announced the sale of their highly significant FTT token. This announcement caused a spike in withdrawals and resulted in a liquidity crisis. After numerous controversies between Binance and FTX, more than 100 affiliated entities of FTX declared the bankruptcy of FTX, leading to its collapse.
Impact:
With the collapse of FTX, users faced immediate challenges. It includes potential loss of access to their funds and inability to execute trades. Additionally, the collapse of a prominent exchange like FTX eroded market confidence in the cryptocurrency industry as a whole. This led to increased skepticism and hesitation among investors and traders, resulting in a temporary decline in trading volume and market activity.
Date:
November 2nd to November 8th, 2022
Conclusion:
The recent crypto crisis sent shockwaves throughout the digital currency market, causing significant price volatility and leaving investors uncertain about the future. Key incidents in 2022, such as the near collapse of Terra, Babel Finance announcing withdrawal restrictions, and the collapse of FTX, have contributed to the crypto crisis in current times. This crisis serves as a reminder of the nascent and evolving nature of the cryptocurrency market. It underscores the need for ongoing research, education, and responsible crypto investment practices.
