Bitcoin just had its worst month ever. Here's why

Things are not looking good for bitcoin. After remaining strong throughout COVID-19, the cryptocurrency has just sunk significantly. The cryptocurrency had its worst month on record, losing more than 38 percent of its value in June as of Thursday afternoon, as reported by CNBC. The cryptocurrency lost roughly 58 percent of its value in the second quarter of 2022, wiping out around $1.2 trillion in value across the total cryptocurrency market.

A researcher also discovered that Bitcoin doesn't live up to all of its technical promises. Ether, the world’s second-biggest cryptocurrency by market capitalization, had a rocky month as well, with prices down by roughly 47 percent.

Will the other shoe drop?

“There is still an aspect in crypto that we are waiting to see if another shoe will drop, if another entity will fail, if the credit cascade will continue,” Matt Hougan, chief investment officer at Bitwise Asset Management, told CNBC in an interview. “I think we have to get through the Fourth of July weekend and get through that quiet period in the market before we build in the second half of the year.”

But why is this happening?

Bank of America analysts on Wednesday pointed to the fact that U.S. consumers are warier of the crypto market with a reported 50% decline in the number of active crypto users from its peak of over 1 million users in November 2021 to less than 500,000 in May. Meanwhile, the U.S. Federal Reserve carrying out two aggressive interest rate hikes to battle rampant inflation has not helped matters as it has sparked fears of a recession.

Dumping risky assets 

As investors dump risky assets, bitcoin stocks are some of the first to go. Then there is the collapse of the algorithmic stablecoin terraUSD and sister token luna. The stablecoin was supposed to be pegged one-to-one with the U.S. dollar and governed by an algorithm and a complex system of burning and minting coins that ultimately failed.

That failure led to devastating knock-on effects, most notably on cryptocurrency hedge fund Three Arrows Capital, which had exposure to terraUSD. Three Arrows Capital had its own issues which compounded, resulting in its liquidation.

Is all lost?

Indeed, things are not looking good for cryptocurrencies. But is all lost? It would seem not as many bitcoin enthusiasts eagerly await another revival and are buying at what they consider bargain prices.

“If your timeframe is a week, or a month, or even a quarter, I think there’s still significant volatility,” added Hougan. “If you have a time horizon measured in years, then yes, this is a great opportunity to think about entering the market.”

Will bitcoin and other cryptocurrencies rebound? Is this a good time to indeed buy low or will things get worse? Only time will tell.