The word "volatile" comes to mind when thinking of Bitcoin and cryptocurrency. While speculations, sentiment, and fundamental events are immediately integrated into the market, crypto values surge and seem to plummet almost as quickly.
Miners were having a blast last year as bitcoin's price soared to $69,000. According to some estimates, their earnings were hovering near 90%, and many opted to expand their operations at a breakneck rate in anticipation of an even bigger bonanza in 2022.
Cryptocurrencies, including Bitcoin, plummet in value in a new digital currency crisis as panicked speculators liquidate assets ahead of the US Federal Reserve's projected interest rate hike today.
Bitcoin Crashes Once More- Cryptocurrency Drops to All-Time Low of $20,000
Bitcoin dropped to a fresh 18-month low on June 15, 2022, as the steady drop in crypto markets showed no signs of abating. Traders are keeping a close eye on the price to see whether it drops below the $20,000 level.
It had rebounded to $21,221 but remained in the red. Since Friday, it has lost roughly 28% of its value and more than half of its value this year. It has dropped over 70% after reaching a record high of $69,000 in November.
Recently, Bitcoin has been highly volatile, surging and falling dramatically in response to various current events.
As a result of the crisis in Ukraine, inflationary fears, and increasing interest rates, which will make it more difficult for companies to borrow money, global stocks have fallen. This, paired with concerns about future regulation, has spilt over into the bitcoin market.
Celsius Network, a prominent US bitcoin lending provider, sparked the latest downturn by halting withdrawals and transfers due to "extreme" conditions. Investors worried the company was on the verge of insolvency; therefore, the company's own digital currency, known as CEL, plummeted 55% after the suspension.
Furthermore, the upheaval in Eastern Europe has contributed to the decline because investors tend to avoid risky assets during uncertain times.
According to statistics from the Financial Conduct Authority (FCA), about 2.3 million UK investors, or 4.4 % of the adult population, owned bitcoin a year ago. One out of every seven people who bought cryptocurrency during the pandemic did so with borrowed funds.
Millions have suffered significant losses as a result of the breakdown.
Also Read: Looming Fears of Inflation, The Fed, and Recession: Where are The Financial Markets Heading?
What Pushed the Price of Bitcoin Down?
The price of bitcoin has fallen due to a series of unfavourable reports and fears of tighter restrictions.
These are some of them:
Celsius Network, a prominent US cryptocurrency lending firm, froze withdrawals and transfers in June 2022, citing "extreme" circumstances.
In June 2022, Binance, one of the world's largest cryptocurrency exchanges, halted bitcoin withdrawals, claiming a "stuck transaction" for the backlog.
Russia was rumoured to be considering banning cryptocurrency transactions as early as 2022. Following the invasion of Ukraine, however, there were calls for cryptocurrency exchanges to prohibit Russian transactions.
Elon Musk, the CEO of Tesla, announced in May 2021 that the electric car company would no longer accept digital payments due to concerns about the environmental impact of cryptocurrency "mining" — the computational power required to create digital currencies such as bitcoin.
In June 2021, Chinese banks and payment institutions were directed to stop allowing crypto transactions, and the Chinese government outlawed cryptocurrency mining. Then, in September 2021, all crypto transactions were deemed illegal, making bitcoin and other cryptocurrencies illegal.
In June 2021, then-US President Donald Trump called bitcoin a "scam" that was fighting with the dollar to be "the world's currency."
Over the years, FBI agents have confiscated millions of dollars in bitcoin from criminals.
The Financial Conduct Authority, a British regulator, effectively blocklisted Binance, one of the main cryptocurrency exchanges, in August 2021. Customers of major banks such as HSBC and Santander have been barred from making payments to Binance.
The International Monetary Fund warned countries using cryptocurrencies as legal cash in the same month, claiming that widespread adoption would jeopardize "macroeconomic stability" and compromise financial integrity.
Last August, a hacker stole $600 million from the crypto platform Poly Network in a cyber-attack, only to repay more than half of it four days later, claiming they did it "for fun" and to "highlight the vulnerability" in the system before others did.
Also Read: "Speed, Data...Crypto?: Fintech Trends to Watch Out for in 2022
Is This the End of the COVID-19 Boom?
The crypto meltdown is, in many ways, a hangover from the industry's two-year bull run. The value of digital assets like bitcoin and ether, as well as a collection of memecoins, has skyrocketed.
They were in high demand among traders. Bitcoin achieved an all-time high of approximately $69,000 in November 2021. Around that moment, Ethereum, the world's second-largest cryptocurrency, hit a new high of $4,800.
The NFT mania of last year is also an indication of the increasing interest in blockchain technology that has emerged due to the pandemic.
During the bull market, dozens of new financial service providers jumped into the fray. PayPal, Revolut, a UK neobank, and Robinhood, a US stock trading app, are just a few corporations that have announced cryptocurrency services. Even sceptics such as JP Morgan, whose CEO Jamie Dimon has called bitcoin a "scam," have introduced similar services.
During the same period, investment in industry initiatives increased dramatically. According to research and analytics firm GlobalData, venture capitalists invested $3.3 billion in 532 acquisitions in 2020. In 2021, those figures grew to $26.4 billion and raised over 1,010 agreements. So far in 2022, VCs have invested $11.9 billion in 613 deals, totalling $11.9 billion.
Within the early weeks of 2022, the crypto market's worth was slashed by over $1 trillion due to volatility. For those keeping track, that is a more significant decline than what occurred during the stock market crash that triggered the Great Depression in the 1920s.
Related: How Will the Global Crypto and Stock Markets Recover from the Inevitable Doom Loop?
Investing in Bitcoin: How Risky Is It?
The appeal of Bitcoin is that it is a worldwide currency not controlled by any government or bank, making transactions cheaper. Its popularity soared recently when Musk declared himself a backer of cryptocurrency and even updated his Twitter bio to #bitcoin.
Due to his personal wealth and power, Musk's statements and actions have caused recent market fluctuations in Bitcoin and Dogecoin. However, there are certain issues about converting 'real' money into cryptocurrencies like Bitcoin, primarily due to security concerns.
A Bitcoin wallet can be lost, or Bitcoins can be deleted and lost permanently.
The Bank of England's governor, Andrew Bailey, has reaffirmed his scepticism of cryptocurrencies, telling MPs that Bitcoin has "no intrinsic value at all."
"Investing in crypto assets, or investments and lending linked to them generally involves taking very high risks with investors' money. Consumers should expect to lose all their money if they invest in these products," the Financial Conduct Authority (FCA) cautioned in January.
5 Things to Do When Cryptocurrency Prices Fall
Fearful of a drop or ecstatic at the prospect of a lower price? In any case, here are five things you should do if bitcoin values plummet.
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You must respond calmly whether you decide to sell your cryptocurrencies or consider a dip in an opportunity to buy more. Making emotional decisions, particularly while trading, rarely yields positive results.
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Is there any news that influences the price of Bitcoin and other cryptocurrencies? It is possible that fundamental news, rather than price action or rumour, has impacted the market mood.
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Cryptocurrency is inherently volatile. Because there is no cash flow in crypto, traders must rely on mood changes to move the price. That implies the market can swing from frantic optimism to dismal despair in a matter of months, as happened in early 2021.
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Examine how the underlying crypto position might change due to recent developments: Will governments become sterner in their approach? Will they inspire more people to use it? Will new rules benefit the bitcoin business rather than damage it? What other factors could influence the market?
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You will want to think about what to do after you have cooled off and assessed the situation and what it means for the future. Whatever path you choose, you will need an action plan reflecting your perspective on the risks and opportunities associated with cryptocurrencies.
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