That’s what happened to cryptocurrencies this week, reported DNYUZ. Bitcoin, the industry’s leader, has fallen by 20% in less than a week, leading to a total plunge in its value by 40% so far this year.
Some of the industry’s other leading currencies and platforms have also incurred significant losses.
The growing fear and anxiety of investors is reminiscent of the sentiments that preluded the financial crisis of 2008, with many now concerned that the crypto plunge could trigger America’s next great recession.
“This is like the perfect storm,” said Dan Dolev, an industry analyst.
Crypto markets have suffered similar setbacks in the past, but adoption of cryptocurrencies has since grown. So, has it become pervasive enough to cause a recession?
Currently, about 16% of Americans hold some form of cryptocurrency. A growing number of investment groups are adding cryptos to their portfolio, but they are not yet betting their livelihoods on it. Banks are also adopting cryptocurrencies, but largely to discourage customers from moving their money elsewhere.
Ultimately, given the newness of the technology and its potential to impact markets, it might be too soon to tell for sure. However, there are likely too few people and investment groups holding cryptos to cause a recession. It’s a newcomer that has only just begun to embed itself in the financial system. So, cryptocurrencies alone may not yet have the power to bring our economy into a recession.
When a disruptive technology begins to take hold of the mainstream, it typically endures periods of growing pains. The Dot-com boom of the early 2000s suffered from a similar pattern; investors poured large sums of money into startups claiming to specialize in the new technology, only to watch many of those startups collapse.
Similarly, one out of three crypto investors don’t understand the technology that they’re investing in. This, combined with the nascent nature of cryptocurrencies, may explain the panic among investors – and why it’s unlikely to be a sign of the next great recession.