Bitcoin has been at a record-low price since November 2020. This was a shock to the entire market because on this day a year earlier, Bitcoin recorded a record-high price of 69,000 USD. The decline of Bitcoin has led to the decline of the entire cryptocurrency market. Key cryptocurrencies such as Ethereum, Polkadot, Avalanche, Ripple, Cardano, etc. also witnessed a drop of several tens of % within 24 hours. At this point, the cryptocurrency market cap has dropped nearly 3 times from its all-time high to around $990 billion.
Compared to the beginning of the year, the Bitcoin price has fallen by nearly $30,000 after peaking at $47,700/BTC on January 1, 2022. Over more than 11 months, BTC has not been able to regain that achievement.
The current slide in Bitcoin and other cryptocurrencies is caused by a variety of short-term and long-term reasons, related to the financial market landscape, the collapse of stablecoins, and the social situation. TIME offers several reasons to explain the recent dismal state of cryptocurrencies.
The link between Bitcoin and the financial market
Many hoped that the non-dependent nature of cryptocurrencies would help them fight inflation and weather periods of crisis. Since Bitcoin is not under the control of any organization or authority, it is expected to retain its value even through economic downturns, wars, or policy changes.
The wishes of the crypto supporters did not come true. This has been proven wrong over the years. When the Covid-19 epidemic devastated the global market in March 2020, Bitcoin plunged 57%. But then, the stock and crypto markets bounced back at an astonishing rate, which experts attribute to many people having time off during the lockdown, combined with income. The government markets disposable income and pandemic relief packages.
Recently, Bitcoin has been under pressure from the decision to change the monetary policy of the US Federal Reserve (Fed) and central banks to reduce inflation. Besides, the world’s largest cryptocurrency is under the influence of the stock market, from uncertainties in the Russia-Ukraine conflict to problems with inflation, supply chains, and oil prices. Even China’s anti-Covid-19 blockade is an event that is expected to affect Bitcoin.
The volatile nature of cryptocurrencies
Bitcoin’s volatility is what makes this cryptocurrency attractive to speculators, as they can make money on Bitcoin faster than regular stockbrokers.
However, making money quickly also comes with many bankruptcy risks. Since the birth of Bitcoin in 2009, the market has gone through several bull and bear cycles, with seasonal investors coming and going. Taking advantage of peak times, many exchanges have introduced risky proposals such as allowing users to invest with borrowed cryptocurrencies without regard to the consequences. The lack of actual cash flow could contribute to a faster “freefall” of cryptocurrency values.
Regulatory and security concerns surrounding cryptocurrencies
Many investors are anxiously watching the moves of countries such as the US, China, India, and Germany, as their governments begin to look for ways to control cryptocurrencies. At the same time, cryptocurrencies continue to wobble due to hacker attacks, including the $600 million Ronin sidechain hack. Hacks like that have shaken consumer confidence in cryptocurrencies, making potential buyers hesitant to enter the market.
Although Bitcoin broke the $30,000 mark, the price was corrected after many people took advantage of “bottom fishing”. They believe that these fluctuations are temporary and that Bitcoin will continue to grow cyclically as it has during the past decade.
However, the price of bitcoin yesterday 11/11 increased sharply again, pulling the price of the entire market up. FTX US has just suspended trading for a few days but still ensures liquidity for withdrawals from this exchange.
Bitcoin’s price rebound is a positive sign. For many investors, this is the right time to buy Bitcoin in preparation for a new bull run. However, investors need to be very cautious because the root cause of this decline comes from the collapse of FTX – the largest cryptocurrency exchange in the US.