Bitcoin crash: what’s behind crypto collapse?
Cryptocurrency is volatile, with a track record of “boom and bust“ cycles that have left many wondering whether it’s safe to invest.
Cryptocurrency is volatile, with a track record of “boom and bust“ cycles that have left many wondering whether it’s safe to invest.
Bitcoin, the most popular cryptocurrency, fell below $20,000 for the first time since November 2020. Over the past seven months its value has shrunk by more than 70%
With the digital currency seemingly on a downward trajectory, what’s fuelling it?
What is happening to the value of bitcoin and why?
Bitcoin is incredibly volatile, rising and falling sharply on a daily basis. But it’s not the only cryptocurrency to have had a tumultuous time recently.
Global stocks have gone into a downturn as result of:
- The war in Ukraine
- Inflationary fears
- Higher interest rates, which will make it more expensive for businesses to borrow money
This has spilled over into the cryptocurrency marketplace.
The slump in June 2022 became caused by Celsius Network, a prime US cryptocurrency lending organization, after it iced over withdrawals and transfers, citing “excessive” situations.
The pass fuelled a hunch across cryptocurrencies, with their price falling underneath $1trillion for the primary time due to the fact that January closing yr.
Bitcoin slid to $23,476 after the announcement. Ether, the second largest token after bitcoin, tumbled by using as a lot as sixteen% to $1,177, its lowest given that January 2021.
China’s continued crackdown on crypto is playing a element too. And there has also been speculation that crypto operations should come to a halt in Russia.
In addition to this, there had been surprising and intense sell-offs of fundamental cryptocurrencies. This has brought on panic and in addition sell-offs as patron confidence is knocked.
Cryptocurrency is volatile, with a track record of “boom and bust“ cycles that have left many wondering whether it’s safe to invest.
Bitcoin, the most popular cryptocurrency, fell below $20,000 for the first time since November 2020. Over the past seven months its value has shrunk by more than 70%
With the digital currency seemingly on a downward trajectory, what’s fuelling it?
In this article we explain:
- What is happening to the value of bitcoin and why
- Why is bitcoin so volatile?
- Has bitcoin’s bubble burst?
- Will bitcoin recover?
- If bitcoin will go up if the stock market crashes
Bitcoin has taken its investors on a rollercoaster ride in 2021, where is it heading next?
What is happening to the value of bitcoin and why?
Bitcoin is incredibly volatile, rising and falling sharply on a daily basis. But it’s not the only cryptocurrency to have had a tumultuous time recently.
Global stocks have gone into a downturn as result of:
- The war in Ukraine
- Inflationary fears
- Higher interest rates, which will make it more expensive for businesses to borrow money
- This has spilled over into the cryptocurrency market.
The slump in June 2022 was triggered by Celsius Network, a major US cryptocurrency lending company, after it froze withdrawals and transfers, citing “extreme” conditions.
The move fuelled a slump across cryptocurrencies, with their value falling below $1trillion for the first time since January last year.
Bitcoin slid to $23,476 after the announcement. Ether, the second largest token after bitcoin, tumbled by as much as 16% to $1,177, its lowest since January 2021.
China’s continued crackdown on crypto is playing a part too. And there has also been speculation that cripto operations could come to a halt in Russia.
In addition to this, there have been sudden and severe sell-offs of major cryptocurrencies. This has triggered panic and further sell-offs as consumer confidence is knocked.
Why is bitcoin so volatile?
Unlike traditional investments such as company shares, where price movements may well be influenced by the performance of the business, bitcoin has no underlying asset.
This means that the movements in its price are based purely on speculation among investors about whether it will rise or fall in future.
As a result, there can be violent swings in the price of bitcoin even in the space of 24 hours.
There have been a number of incidents that have caused the price to fluctuate:
Negative stories
A number of negative stories and threats of further regulation have pushed the price of bitcoin down
- These include:In June 2022, Celsius Network, a major US cryptocurrency lending company, froze withdrawals and transfers, citing “extreme” conditions.
- Also in June 2022, Binance, one of the world’s largest cryptocurrency exchanges, paused bitcoin withdrawals, with chief executive Changpeng Zhao blaming a “stuck transaction” that was causing a backlog.
- Early in 2022, it was reported that Russia might ban cryptocurrency operations. But then, after the invasion of Ukraine, there were calls for crypto exchanges to ban Russian transactions.
- In May 2021, Tesla boss Elon Musk said that the electric car maker would no longer be accepting digital payments over concerns about the impact of cryptocurrency “mining” – the computing power required to create the likes of bitcoin – on the environmen
Positive stories
But there have been more positive stories, and these have given the bitcoin price some protection over the past year:
- In March 2021, Morgan Stanley became the first big US bank to offer wealthier clients access to bitcoin funds – albeit restricted to no more than 2.5% of an investor’s total net worth.
- In June 2021, a month after sparking a crypto sell-off, Elon Musk said Tesla would probably accept bitcoin payments again when more than 50% of its energy usage came from renewable sources.
- Amazon posted a job advert for a “digital currency and blockchain product lead” in July 2021, prompting speculation that it would soon accept bitcoin as payment.
- Last September, El Salvador made bitcoin legal tender.
Has bitcoin’s bubble burst?
It certainly seems like bitcoin go back up has burst as investors have lost confidence in the cripto sector causing prices to crash:
- In 2021 the price soared by more than 700% in 12 months to a record high of $69,000 in November
- Fast forward to June 2022 when it plummeted below $18,000
When assets rise very quickly in price and surge to a record high, typically this makes a crash much more likely – or at least a correction, which is when the price falls back down to a more “normal” level.
This appears to be the situation that bitcoin is in right now. It took the cryptocurrency 11 years from launch to get to $20,000 per coin, but only three weeks for bitcoin’s price to double from there.
Will bitcoin go back up?
There are no guarantees when it comes to investing. As quickly as bitcoin falls, it could just as rapidly climb again.
There are a number of concerns about cryptocurrencies that are dampening its prospects:
- Crackdowns in countries like China
- Calls for greater regulation across the globe
- Environmental concerns
- Security issues and hacks
- Their price is based solely on speculation
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