Cryptocurrency investors experienced a rude awakening in April 2021 when the value of their investments plunged over a matter of hours before rebounding. Last month, Crash Proof Retirement® told you about the cryptocurrency bubble and what it could mean for your retirement investments (from Are We In a Cryptocurrency Bubble?). This month, the cryptocurrency flash crash serves to highlight our warnings about the volatility of these investments and how their performance can impact the securities market. By examining the causes of the cryptocurrency flash crash, investors can see how fragile the future of cryptocurrency investing is and become more educated about the importance of protecting their own retirement savings and avoid the risk of a larger market shift.
Forming a Cryptocurrency Bubble
Once considered a fringe investment, cryptocurrencies have gained a great deal of notoriety in the past several years. Nearly a decade ago, Bitcoins were trading at prices below $20, but by 2018, the price of a single Bitcoin was trading above $15,000. In 2021, a cryptocurrency hype train fueled by the support of prominent figures such as Elon Musk sent the price of Bitcoin soaring to more than $60,000. While many investors have made millions trading Bitcoins and other cryptocurrencies, others have lost nearly everything. Currently, enthusiasm about cryptocurrencies seems to be at an all-time high, but will investors stick around if the bubble bursts?
Causes of the April Flash Crash
Cryptocurrencies are decentralized and unregulated, therefore, governments are unable to stabilize the price of cryptocurrency. This means that upward and downward swings can be sudden and pronounced and regulators have balked at opportunities to try and regulate these currencies. Not only that, but the price of cryptocurrencies is also subject to the possibility of manipulation through various means. Some world leaders, including Treasury Secretary Janet Yellen, even believe that cryptocurrencies are being used to finance illegal activities. While it is unclear how much manipulation and illegal activity is associated with cryptocurrencies, it is a fact that world governments are concerned about the stability of these investments and what it can mean to the health of the global economy. They may also be wary about the effect widespread cryptocurrency use will have on the value of domestic currency (such as the dollar), which has caused more than 80% of the world’s central banks throughout the world to start studying and testing digital versions of their own currency. The proliferation of digital currencies backed by the treasuries of the world governments could make today’s cryptocurrencies much less attractive by comparison.
The April flash crash seems to have started when rumors spread that the Securities and Exchange Commission — the government agency responsible for regulating the financial securities industry — was going to start cracking down on cryptocurrencies to address cases of suspected money laundering. Investors who appreciate the decentralized and unregulated nature of cryptocurrency believe that a crackdown on these digital currencies would devastate the value of their holdings. Furthermore, those same investors have expressed concern about the impact that a centralized digital dollar would have on the cryptocurrency market, and whether that would eliminate the allure of cryptocurrency investments.
A portion of those concerned investors sold off their Bitcoins and other cryptocurrencies, leading Bitcoin prices to plunge almost 14% in an hour. Dogecoin, Ethereum, and other popular coins followed suit, wiping out approximately $310 billion in value from global cryptocurrency markets. Whether or not regulators in the U.S. will crackdown on the usage of cryptocurrencies, several countries have already taken drastic steps to ban the use of cryptocurrencies, like Bitcoin. The mere suggestion that cryptocurrencies could be banned or even regulated in the United States could cause investors to panic and potentially spell the end of cryptocurrency investing as we know it.
What do Cryptocurrency Crashes Mean for Your Retirement Investments?
You may think that if you are not invested in cryptocurrency, that you will be protected from the wild price swings these markets regularly experience. Think again! Whether you are invested in the stock market or not, cryptocurrencies are growing in popularity and becoming widely accepted as a part of everyday life as more companies are allowing cryptocurrencies to be used as payment for goods and services. While cryptocurrencies are integrated into the economy, governing bodies such as the SEC will have to take a solidified stance on the usage and incorporation of digital money. Cryptocurrency holdings represent trillions of dollars in wealth, not only for individuals but also for businesses. If that wealth were to be wiped out it would create a ripple effect that would devastate investors, businesses, and the global economy. The fact is that any securities-based investment is at risk in a cryptocurrency crash and fortunately for securities investors, April’s flash crash turned out to be short-lived.
If you are worried about the threat of a larger cryptocurrency crash and concerned that your at-risk funds could be brought down with it, it is time for you to get educated about safer alternatives to the high risk of the securities industry. The proprietary vehicles at Crash Proof Retirement® are guaranteed to outperform inflation and protect you from losing your principal during a stock market downturn. Even if cryptocurrencies were to crash, your investments in the Exclusive Crash Proof Retirement® System would remain secure and intact. These revolutionary Crash Proof Vehicles have been utilized by more than 5,000 Crash Proof Consumers to eliminate risk and unnecessary fees from their investment portfolios. When you are ready, the licensed retirement phase experts at Crash Proof Retirement® are here for you and can help you get educated about how you can protect your retirement from the volatility of the cryptocurrency market. To find out more information call 1-800-722-9728 or visit crashproofretirement.com.