The most well-known cryptocurrency, bitcoin, saw its price fall below $16,000 once more in November 2022, one year after it hit a record high of $69,000 in November 2021. Now, it is worth almost $17,000. Since late 2021, the value of many cryptocurrencies has fallen drastically. This price fall has caused many crypto investors to reconsider treating cryptocurrencies as investments.
Investors want to learn why cryptocurrency prices have dropped drastically following all the hype.
What’s causing cryptocurrency’s downward trend? Why now?
In this blog, I’d explain;
- Why is the price of crypto falling?
- Why is crypto so unpredictable?
- Is bitcoin’s phase over?
- Will bitcoin go back up?
Why is the price of crypto falling?
The cryptocurrency decline results from investors selling off their holdings after the collapse of FTX and FTX.US, two cryptocurrency exchanges. The failure of FTX has wide-ranging effects on the sector because it had invested in so many crypto-related businesses and cryptocurrencies.
FTX and FTX.US declared bankruptcy under Chapter 11 on November 11, 2022. The value of its native token, FTT, had already collapsed from over $25 to around $2. Both Bitcoin and Ethereum dropped to two-year lows in price.
Another reason for bitcoin’s fall below $20,000 for the first time since 2020 in June 2022 is Celsius Network’s decision to suspend withdrawals and transfers, claiming “extreme” conditions. Celsius Network is a significant US bitcoin lending organization.
Another factor is China’s ongoing crackdown on cryptocurrencies. Additionally, there have been rumours that crypto operations in Russia may cease.
Major cryptocurrencies have also experienced abrupt and significant selloffs. As a result of the resulting fear and further sell-offs, crypto exchanges have reduced in value, and consumer confidence has been damaged.
Why is crypto so unpredictable?
Unlike stocks, bonds and cash investments, where the performance of the business may well influence price fluctuations, crypto has no underlying asset.
The changes in the price of crypto are solely driven by investor conjecture about whether it will increase or decrease in value in the future.
As a result, the price of bitcoin might fluctuate drastically, even within a single day.
People are selling their cryptocurrency to lower their investment risk due to excessive inflation and a problem with the cost of living.
Additionally, there have been some events that have caused the price to change.
A lot of negative stories have pushed the price of bitcoin down.
These consist of the following:
- A “stuck transaction” that was creating a backlog was the reason given by Binance’s chief executive, Changpeng Zhao, for the suspension of bitcoin withdrawals in June 2022.
- Russian cryptocurrency businesses may be outlawed, according to early 2022 reports. After Ukraine was invaded, there were calls for cryptocurrency exchanges to stop accepting Russian payments.
- Elon Musk, CEO of Tesla, announced in May 2021 that the electric vehicle manufacturer would stop taking digital payments due to worries about how mining cryptocurrencies, which involve using computing power to create digital currencies like bitcoin, might affect the environment.
- Banks and payment companies in China were instructed to stop allowing cryptocurrency transactions in June 2021, and the Chinese government outlawed cryptocurrency mining. Then, in September 2021, all cryptocurrency transactions were deemed illegal, thus prohibiting currencies like bitcoin.
- Also, in June 2021, Donald Trump, the US president at the time, called bitcoin a “scam” that was vying with the dollar to be “the money of the world.”
There have also been positive stories, and these have protected the bitcoin price over the past year:
- While limited to no more than 2.5% of an investor’s entire net worth, Morgan Stanley was the first central US bank to provide wealthy clients access to bitcoin funds in March 2021.
- Elon Musk predicted Tesla would likely resume accepting bitcoin payments in June 2021 when more than 50% of its energy use came from renewable sources, a month after causing a crypto selloff.
- In July 2021, Amazon advertised a position for a “digital currency and blockchain product lead,” sparking rumours that it will soon start taking bitcoin as payment.
- El Salvador legalized bitcoin as currency in September 2022.
Is bitcoin’s phase over?
The price increased by more than 700% in just one year (2021), reaching a record high of $69,000 in November.
Since investors no longer have faith in the cryptocurrency industry, it appears that the phase of bitcoin is over. Prices have fallen because of worry about bitcoin’s future.
It fell drastically below $18,000 in June 2022. By November 2022, only one year after reaching a record high of $69,000, it was still below that amount.
Some people say the fall of crypto happened as expected. This looks to be the state of cryptocurrency. Crypto was used;
1- To reach $20,000 per coin after 11 years from launch
2- But from there, it took just three weeks for the price of bitcoin to double.
Without question, the price of the cryptocurrency has fluctuated at inconvenient moments. As a result, it is impossible to anticipate whether the price will rise again or stay low.
Will bitcoin go back up?
Regarding investing, there are no assurances. People have seen enormous success with cryptocurrencies, and others are struggling with losses. Bitcoin might rise again just as swiftly as it falls.
The decentralization of crypto is viewed as threatening, influencing the pricing of digital currencies.
Fans of bitcoin highlight these benefits of the digital currency is decentralized:
- Technology that could revolutionize various industries
- Simpler and less expensive transactions by removing “middlemen” like banks
- Global trading would be more straightforward because there wouldn’t be any worries about exchange rates with non-fiat digital money.
- The transactions are more private.
- Because it cannot be printed or confiscated, it is a secure way to keep value.
- Bitcoin has been promoted as a replacement for gold; thus, it may be an effective hedge against inflation.
Given its volatility, it’s feasible that Bitcoin will regain its momentum in the future (perhaps weeks, months or even years down the line).
But no one has a crystal ball, and it is challenging to predict the future of bitcoin due to its speculative character.
