The price crash of many major currencies has dominated crypto news recently. Just two months after reaching its all-time high of nearly $70,000 in November 2021, Bitcoin fell to a little over half at $37,000 in January 2022.
The price of Ethereum has crashed to around $2,400, down from almost $5,000 at the end of 2021. Top cryptocurrencies such as XRP, Solana, BNB, and Cardano have lost up to 30% of their value. Overall, the great crypto crash of 2022 has wiped out $1.5 trillion from the industry.
What potential impacts will this crash have on the world?
Impacts of the Crypto Crash
1. Government Gets More Involved
The US government is gearing up to get heavily involved with cryptocurrencies. According to financial media outlets Bloomberg and Barron’s, the Biden administration is preparing an executive order to ensure federal agencies regulate cryptocurrencies.
Apparently, the administration now considers cryptocurrency regulation a matter of national security. The new regulatory framework will cover cryptos, stablecoins, and NFTs.
2. The Price of GPUs Eases
The crypto crash has caused some miners to quit. This is because the rewards have fallen too low to cover their operational costs, particularly the cost of electricity. Reduced demand for miners will undoubtedly have an impact on GPU prices. Indeed, some stores have already reported a five to ten percent decrease in the price of GPUs. You can even find several used GPUs online at much more reasonable prices.
Chip manufacturers have increased their output after the gradual reopening of the global economy. With COVID lockdowns ending, prices are coming down. But the crypto crash has helped lower the cost of video cards too.
3. Retail Investors Get Wiped Out, Whales Consolidate
A survey from NORC at the University of Chicago found that 41% of cryptocurrency traders are women and 44% of investors are people of color. 55% don’t have a college degree. This means that a huge number of crypto investors are average Joes and Janes, and a sizable chunk of them are minorities.
Many of these smaller crypto holders have seen their investments wiped out and many are selling off what’s left. Others who thought they could retire early are finding themselves needing to take on second jobs, and postpone retirement. Those who took loans to invest in crypto will likely default on those loans.
The worst part is they will have to pay taxes on their crypto holdings based on their value when they bought them, not their current value. This will bring even more pain.
Bitcoin’s slow recovery is a sign some big traders or ‘whales’ are moving back in and buying cryptos on the cheap from spooked retail investors.
4. Celebrities and Politicians Take Pay Cuts
New York City Mayor Eric Adams gets paid $6,000 every two weeks after taxes. His salary is in crypto, split between Bitcoin and Ether. The fall in the value of cryptos has seen his bi-weekly salary fall by over $1,000.
Odell Beckham Jr., who plays in the NFL for the LA Rams as a wide receiver, agreed to take his $750,000 salary in Bitcoin. The crypto crash has cut his salary by a whopping 50%.
The Economy Will Be Fine
The crypto crash will have a limited impact on the wider economy. The $1.5 trillion losses represent only about 6% of US GDP. Second, the crypto ecosystem is largely isolated from the broader economy. Crucially, banks have kept away from crypto, so the crash has had zero impact on the financial sector.
Cryptos will bounce back, and crash again; it’s the nature of the industry. But, for now, they will not do any damage to the US economy.
Trading crypto isn’t free. But knowing about these fees will make sure you don’t lose more than you expect next time you trade your crypto.
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