Main Reasons for the Crypto Crash

Cryptocurrencies market had seen a major setback in the last few months. There rise state of panic and concern among cryptocurrency investors. Almost all cryptocurrencies got crashed but major coins that were having a greater market cap such as Bitcoin, Ethereum, etc and were considered relatively stable got crashed which give rise to concern among investors, that is why crypto prices has linking with the stock market?

The analyst said that ‘the main reason for price reduction in cryptocurrencies are an increase in interest rate by government, stable coin crash and Ukraine war crises’

The crypto market cap which was valued initially at $3 trillion dollars and the previous week reduced to half and was valued at $1.3 trillion.

The market cap of Bitcoin is about $548 billion roughly 43%, Ethereum $236 Billion, and Tether (USDT) $ 82, which abruptly reduced to halves of its previous value.

Comments on legality, accounting/bookkeeping, and taxation issues:

The main concern around cryptocurrencies is their legal status. The last few years were a tough journey for crypto holders.  Due to environmental concerns it is politicized and which creates uncertainty among investors.

Many countries take capital gain tax which is one of the reasons that accounting and bookkeeping for cryptocurrencies are also debated among investors and in most sought-after topics.  Which is a soft signal of documenting and making it count in economic metrics. 

Main reasons for Crypto crash:

Stablecoin cryptocurrencies crash: 

These are cryptocurrencies that are considered as the name suggests to have a stable value, their value is pegged with some assets, normally fiat currency or gold. These coins are tether (USDT), terra USD, etc.

Tethra has value pegged with US dollar it means if you buy a tethra now for $ 10 dollar it will remain of $10 after a year, but contrary to tethra terra USD has value base on   $1 but this work with algorithm when the value of terra USD falls from $1 exchanges it with the Luna. As it is a stable coin but based on an algorithm when its value falls the market starts crashing. What are terra USD and LUNA?

These are the stable coins created by a South Korean company, which offered stability during market volatility.

When UST crashed the luna holder got a major setback. As a compensation conversion of UST to Luna the supply of luna increases and price decreases, which causes Luna to use 99% of its value.

The sudden decline in the Luna was the worst day for crypto exchanges ever, as there was no liquidity.

The analyst considers the severe crash as due to the UST stable coin pricing structure.

Economic metrics stability measures of government:

The US government's measures to overcome inflation was also one of the main reason for the cryptocurrency market crash. The government increases the interest rate to half to overcome. As people were supposed to bear losses on borrowing cost due they needed liquidity so people sell their crypto-asset, also due to high borrowing cost their purchasing power decreases, and demand for crypto decreases, and ultimately prices fall.

Previously due to pandemics to help people and households to have access to debts government had lowered the interest rate which in turn has multiple impacts on the economy overall. Due to high purchasing power inflation rises and people invest in cryptocurrencies with this increased demand for crypto. 

As a supply and demand factor, the increased demand for crypto increases their prices enormously. Which was not the actual value, you can term as exaggerated or inflated value to high demand resulting from decreased interest rate and increased purchasing power.

Ukraine war crises: 

Ukraine war crises:

Has impact on the overall world economy as there as increased petroleum prices and there is an increase in general price level which ultimately reduced the purchasing price which in turn reduce demand, similarly demand for cryptocurrencies also decreases and ultimately prices reduction initiated which fuel further people selling cryptocurrencies and prices reduction continued to its lowest. Now, Bitcoin which has the average value the previous year was $47300 reduced to 31553 at the time this blog is publishing.

Correlation between crypto and stock market:

with the crash in the stock market, the cryptocurrency market has also crashed. The analysts drive that there is a correlation between the stock market and the cryptocurrency market, but they also claim it seems to be temporary.

Analyst’s suggestion regarding future of crypto regains:

According to the CEO and co-founder of Mudrex recently aid that ‘’ BTC’s traded at US$30,000 could keep the short-term buyers active, and it will resist up to US$35,000.Ethereum, value also bounce back by nearly 3% after crashing below US$2,300 for the first time. The UST also returned to US$0.90 as the LFG’s bitcoin holding outweighed its worn-out supply on exchanges. The market seems to have started to recover a bit from the recent downward trend”

Crypto Mining and other areas subjected to normal income tax:

There are other transactions that give rise to income and are taxable under normal income tax that are:

  1. Mining: Mining should be recorded as mining income, and the mined asset should also record.

  2. Crypto stacking

  3. Interest.

That being said there should be channelized bookkeeping and accounting for cryptocurrencies, as you have to avoid any tax in compliance and keep track of all income and capital gain transactions.