Cryptocurrency prices crashed again on Tuesday evening, with several coins down as much as 8 per cent in the last 24 hours.
Bitcoin fell from $20,000 to below $19,000, while Ethereum dropped back to around $1,500 having climbed to nearly $1,670.
Prices are down across the board. XRP has fallen 4 per cent to $0.32, Cardano is down by 7.5 per cent to $0.46, and the likes of Binance Coin, Solana and Dogecoin has suffered similar losses.
It comes amid the Ethereum network merge that has been labelled one of the most important moments in crypto history.
Here’s what we know about crypto’s latest crash, why the Ethereum merge is so important, and what experts think could happen next.
Why did cryptocurrency crash?
Cryptocurrency is strongly influenced by the traditional stock market, which also fell on Tuesday.
The S&P 500 fell by 0.4 per cent and the NASDAQ 100 fell by 0.7 per cent.
The stock market slump came in response to fears the Federal Reserve could continue trying to dampen inflation, with the dollar reaching a 20-year high.
The crypto price drop came after a 10-day stretch during which Bitcoin traded around the $20,000 mark.
Joe DiPasquale, CEO of crypto hedge fund manager BitBull Capital, told CoinDesk: “Each failed attempt (to breach the resistance zone just above $20,000) increased the likelihood of a test of the bottom of the price range.”
What is the Ethereum merge?
The Ethereum merge will divide the Ethereum network into smaller data blocks, in order to make it more efficient and significantly greener. It will merge the Ethereum Mainnet with the Beacon Chain.
It will change the network from proof-of-work to proof-of-stake. This means that instead of using traditional mining – which requires powerful computers to solve math puzzles to run the network and create new coins – it will now use a system in which ETH owners can stake it to power the network.
According to Ethereum Foundation, Ethereum’s energy consumption will be reduced by 99.95 per cent after the merge.
What are experts’ predictions for crypto?
Experts are painting a concerning picture for Bitcoin investors.
Naeem Aslam, an analyst at broker AveTrade, told Barron’s: “Bitcoin’s daily range has narrowed massively, and this is giving us an indication that a massive capitulation is coming.
“We believe that this capitulation can be any day now as Bitcoin has been trading in a narrow range for a long period of time.”
Crypto researcher Kyle McDonald told Coindesk the Ethereum merge could have a negative effect on Bitcoin.
I think after the merge, investors and regulators are going to realise that proof-of-work was never really necessary and we’re slowly going to see a huge crash in the Bitcoin price,” he said.
“Bitcoin will never hit $69,000 again; now’s a great time to sell all your Bitcoin.”
Ethereum could become the new market leader if the merge is a success, but investors are waiting with bated breath to see how it pans out.
Dr Anna Becker, CEO of algorithmic crypto investing platform EndoTech, told the Evening Standard: “If it happens and everything goes smoothly, we move into a new era and it’s extremely exciting for the whole industry. But as with many other projects it can happen that we will hit some stumbling blocks and it will not go as smooth as we hope.
“Ethereum is the infrastructure for many companies to manage their blockchains, so if something goes wrong we have the halt of the industry… it will be quite troublesome for the industry to survive this period.”
She added: “Ethereum is the new hope of the market, so we expect that it becomes a leading index and a leading coin with the market.
“Cryptocurrency can become the currency that is used for everyday use and then it will become extremely widespread.”
How risky is cryptocurrency?
People invest at their own risk and cryptocurrencies are not regulated by British financial authorities.
All crypto investments are risky, but meme coins like Shiba Inu are particularly volatile, and you should be prepared to potentially lose everything you invest.
The Financial Conduct Authority warned in January: “Investing in cryptoassets, or investments and lending linked to them, generally involves taking very high risks with investors’ money.
“If consumers invest in these types of product, they should be prepared to lose all their money.”
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, previously explained the risks to i.
She said: “On top of being extremely volatile, most cryptocurrencies are unregulated, which not only adds another layer of uncertainty but also means that investors have little or no protection against fraud.”