Is Bitcoin Crash Coming?

The digital currency is volatile with a track record of “boom and crash” cycles that leaves many wondering if a bitcoin crash is inevitable.

The digital currency had a rollercoaster ride in 2021, reaching an all-time high of around $69,000 on November 10, 2021. But since the start of 2022 it has been on a downward trajectory and is now worth around $38,000.

In this article we explain:

Why is the cryptocurrency market crashing?

Bitcoin has been on a roller coaster lately, rising and falling sharply on the back of a number of news stories. But it's not the only cryptocurrency with a turbulent ending until 2021.

The downturn in global stocks was caused by continued uncertainty about a new variable for Covid and higher interest rates, which will make it more expensive to borrow money for companies. This has extended to the cryptocurrency market, along with concerns about further regulation.

The price of Bitcoin and a number of other prominent digital assets dropped significantly at the beginning of December. In early 2022, cryptocurrencies fell again: the price of Bitcoin dropped to about $40 thousand per coin at the end of January.

Concerns about US interest rate hikes and the ongoing Chinese crackdown on cryptocurrencies play a role. There has also been speculation that Russia may ban digital operations in the country.

Why is Bitcoin so volatile?

Unlike traditional types of investments such as corporate stocks, Bitcoin does not have any underlying assets.

Its price does not depend on how well the business is doing but whether investors believe that Bitcoin will rise or fall. This means that moves in price are based solely on speculation about how people think it will perform.

As a result, there can be extreme fluctuations in the price of bitcoin, even within 24 hours. There were a number of incidents that caused the price to fluctuate:

negative stories

A number of negative stories and threats of further regulation have sent the bitcoin price down. These include:

•  In May 2021, Elon Musk said that Tesla would no longer accept bitcoin due to environmental concerns.
• Sanctions from the Chinese government in June 2021 on Bitcoin trading and mining
• Donald Trump described Bitcoin as a scam vying against the dollar to be the "world's currency" later that month
• British banks ban payments to cryptocurrency exchanges
• FBI agents confiscated millions of dollars in bitcoin from criminals
• The UK Financial Supervisory Authority is blacklisting Binance, one of the largest cryptocurrency exchanges.
• Big banks like HSBC and Santander are following suit
• IMF Warnings – The International Monetary Fund has warned countries that use cryptocurrencies as legal currency, saying its widespread use would threaten “macroeconomic stability” and could harm financial soundness.

positive stories

But there have been more positive stories that have driven the price up over the past year:

• Morgan Stanley has become the first major US bank to offer wealthy clients access to bitcoin funds - albeit limited to no more than 2.5% of total investor net worth in March 2021
• In June, Elon Musk said that Tesla will likely accept bitcoin payments again when more than 50% of its energy use comes from renewable sources.
• Amazon publishes an advertisement for the position of “Digital Currency and Blockchain Producer Lead,” spurring speculation that it will soon accept bitcoin as payment.
• El Salvador accepts bitcoin as the country's official currency
• Other stories are more mixed in terms of what they mean for digital currencies, such as the US central bank, the Federal Reserve, given whether it will launch its own digital currency.

Has the Bitcoin bubble burst?

When asset prices rise too quickly and hit a record high, this usually makes a crash more likely. Or at least a correction, which is when the price falls back to a more “normal” level.

This appears to be the situation Bitcoin is in at the moment.

It took 11 years from bitcoin's launch to hit $20,000 per coin, but only three weeks for bitcoin's price to double from there.

The crucial year for crypto investors was 2013. The price of Bitcoin rose from $13.40 at the beginning of the year to its December peak of $1,156.10, before dropping to around $760 three days later.

Fast forward to 2021 and the price is up over 700% in 12 months.

It is unpredictable where he will go next.

Will Bitcoin recover?

There are no guarantees when it comes to investing. Once Bitcoin falls, it can rise again at the same speed.

There are a number of concerns about digital currencies:

• repression in countries like China
• Calls for more regulation around the world
• environmental concerns
• Its price depends only on speculation

Bitcoin fans note its positive qualities:

• Transformative technology that can revolutionize industries
• Simpler and cheaper transactions by eliminating the “middleman”
• Easiest global trade
• Safe storage is valuable because it can't be printed or hijacked

Bitcoin has been promoted as an alternative to gold, which means that it can establish itself as a hedge against inflation Due to its volatile nature, it is possible that Bitcoin will gather momentum again at some point in the future (perhaps weeks, months or even years on the line).
But no one has a crystal ball, so it is impossible to say for sure whether Bitcoin will collapse in the future.

Will Bitcoin Rise If The Stock Market Crash?

not nessacary. Bitcoin proponents see it as a diversification tool in balanced portfolios, but it was no better than stocks at the start of the coronavirus pandemic. This is because investors panicked selling everything.

In the first two weeks of March 2020, the price of Bitcoin fell by more than 40%.

“That was when we saw all of the stock markets pull off aggressively because of concerns about Covid-19,” notes Rosie Bullard, partner and portfolio manager at James Hambro & Partners.

"So it wasn't exactly a store of value in a stock market reversal."

However, how digital assets perform during a stock market crash will depend on the reason for the collapse of the financial markets.

If it is an inflationary shock, as we saw in 1974, most bitcoin investors believe it will provide protection.