Are crypto crashes becoming the next dot-com bubble burst?

[ad_1]

urfinguss / Getty Images / iStockphoto

As interest continues to grow in cryptos, their value has plummeted in recent weeks, and some experts say the trend is similar to the dot-com bubble of the ’90s.

See: 71% of Institutional Investors Plan to Buy CryptoFind: Crypto Market Collapsed, Wiping Out $ 90 Billion in 24 Hours

While you only have a small number of people speculating on things if they lose their money, they lose their money. Once you get into the financial system, the problems are bigger, John Quiggin, an economist at the University of Queensland in Australia, told Money.

This week alone, Bitcoin fell below $ 30,000 for the first time since June 22, wiping out nearly $ 90 billion from the crypto market in 24 hours.

This represents a loss of over 50% from its all-time high of $ 65,000 in April.

The last time cryptocurrency prices fell, in 2018, Bitcoin fell 80%, Money reports, adding that this event occurred in a financial vacuum, as Bitcoin transactions were isolated and platforms such as Coinbase had little or no ties to public markets. or the economy at large.

Now, however, Bitcoin is inside the system, Money claims, which could pose a threat of systemic risk.

Many of the same participants who own cryptocurrencies are also long-term and growth speculative stocks, like the Nasdaq. [stocks]said Lorenzo Di Mattia, the manager of Sibilla Global Fund who was one of the first to warn investors of the 2008 stock market crash in which $ 1.8 trillion was lost on an index of 170 internet stocks. , which triggered a recession.

There are several ways that cryptos have become attached to the wider financial system. First, the $ 1,000 billion crypto market value is suddenly much more than a drop in the financial ocean. When the sums at stake are this large, implosions usually have ripple effects, Money says.

Next, Money argues that Bitcoin has strong ties to the financial market. Bitcoin has also developed important links with the wider stock market. For example, it indicates that Coinbase competes with Intercontinental Exchange to be the largest publicly traded financial exchange in terms of market value, with a current value of $ 46 billion.

The story continues

Finally, the most dangerous way the cryptocurrency markets are linked to the U.S. economy is by using a multi-billion dollar hybrid currency that is literally called Tether, Money reports.

See: What cryptocurrency are you invested in? Take Our SurveyFind: Millennial millionaires get richer on crypto from older generations, not so much

Tether, a stablecoin, is the most popular stablecoin and is widely used for trading, lending, and interest, reports GOBankingRates.

If investors suddenly bail out the Tether cryptocurrency en masse, they might be forced to get rid of their commercial paper holdings. This, in turn, could undermine confidence in the larger commercial paper market. It was a tightening in the commercial paper market that sent the Great Financial Crisis to the heart of the United States’ real economy in 2008, Money says.

To protect your investments, financial planners recommend having no more than 5% of your money in cryptocurrency or other volatile assets.

More from GOBankingTaux

This article originally appeared on GOBankingRates.com: Are Crypto Crashes Becoming the Next Dot-Com Bubble Burst?

[ad_2]