The bitcoin exchange rate fell below $80,000 this week. Compared to the peak reached in mid-January, the decline was about 27%. In parallel, the quotes of other cryptocurrencies collapsed. The collapse turned out to be comparable only to the fall after the collapse of the FTX exchange at the end of 2022. There are many reasons for the decline, but they once again confirmed the status of cryptocurrencies as an extremely volatile and unreliable means of investing capital in contrast to gold, which is growing against the background of literally the same news. We can only hope for a correction of the situation with the transition of the crypt to the mainstream. Details about the new bitcoin collapse can be found in the Izvestia article.
High hopes
On the day of Donald Trump's inauguration, bitcoin set its historical maximum, exceeding the mark of $109 thousand. Up to this point, it had been continuously growing against the background of the most positive expectations from the change of leadership in the White House: crypto enthusiasts were counting on the creation of a reserve fund in bitcoins and other efforts to promote virtual currencies, as well as turning them into full-fledged assets.
US President Donald Trump delivers a speech after the inauguration ceremony
A significant part of the losses occurred due to the sale of short-term investors who had previously opened clearly speculative positions. They lost about $2 billion on the weakening of bitcoin and quickly panicked, significantly worsening the situation. What happened?
Duties have reached the crypt
According to most analysts, the general atmosphere in the financial markets was the key reason for the collapse. First of all, we are talking about Trump's statement to introduce 25 percent duties on imports of goods from Canada and Mexico after a month-long moratorium. In addition, the US administration plans to increase duties on Chinese goods by another 10 percentage points. Finally, tariffs against European countries are also on the horizon in April.
This is a pretty serious threat. The markets expect that, firstly, the duties will reduce economic growth in all the countries they will affect, including the United States. Secondly, there is a risk of a new acceleration of inflation. Although bitcoin and other cryptocurrencies were originally supposed to be an asset that protects against inflation, this is not the case, because with growth, central banks will almost certainly raise refinancing rates, which will reduce liquidity in the market. In this case, cryptocurrencies will be the first to be affected.
Thus, one of the unintended consequences of the introduction of large-scale tariffs may be the fall of bitcoin and other "crypts". Of course, a nervous and volatile market places such risks in advance on the principle of "sell on rumors, buy on the news."
Casino meme
However, something else has happened in the crypto market in the last few weeks. Memcoins — currencies that have no real value other than being linked to memes or real people, often celebrities — have been around for many years. But it has been a long time since they have been in the foreground in such numbers.
Memcoins associated with well-known politicians have rocked the market. First, trumpcoin appeared before Trump's inauguration, and then the coin of his wife, Melania. In both cases, the situation developed according to the same scenario: the currency grew rapidly for several days, and then collapsed, as a result of which investors lost most of their invested funds. Thus, Melania Trump's currency dropped by more than 90%.
But Argentina's President Javier Miley surpassed everyone. He openly supported Libra memcoin, which soared several orders of magnitude during the day on February 14, and then collapsed just as quickly. The losses of investors amounted to $250 million. Miley deleted a post with Libra support, but they remembered it for him. In Argentina, they even tried to impeach the extravagant head of state. The attempt was unsuccessful, and Miley's ratings even increased slightly.
In the end, the Argentines did not have any losses from this event, and investors from China and the United States suffered all the losses.Nevertheless, the world has been quite clearly shown the completely lottery risks of memcoins, even those associated with major political figures. This did not add any confidence to the players in the cryptocurrency market.
By the way, the American Securities and Exchange Commission (SEC) explicitly stated that memcoins cannot be considered securities. In theory, this is a correct and logical statement, but against the background of the collapse of bitcoin, it only increased the panic in the market.
It's not even close to gold
In fairness, the SEC extended a hand of friendship to the cryptocurrency community by suspending a number of investigations, including those directed against the largest exchange Coinbase. But these steps have not yet fully compensated for the lack of clear legislation and general "rules of the game."
In general, we see that the boom in the cryptocurrency market, associated with the euphoria of the friendly regime led by Trump coming to power in the world's largest economy, has slowly come to naught.
But more importantly, one of the main problems associated with bitcoin — its exorbitant volatility — is still unresolved. Just as it is still not clear exactly what benefits cryptocurrencies and blockchain in general can offer besides financial speculation and opportunities to circumvent traditional currency systems. Finally, the problem of the speed of circulation has not been solved: the lag behind the usual payment systems in the number of transactions per minute remains huge.
Expectations of bitcoin as an alternative asset that is not subject to inflation due to limited supply and its transformation into new gold look rather shaky against the background of the brilliant performance of tangible gold. Over the past month, gold has risen in price by more than $150 amid geopolitical turmoil. It remains a safe haven for those who are afraid to trust fiat currencies and related assets. After all, it protects against inflation, at least for now, much better than unstable bitcoin.
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