Cryptocurrency is highly volatile, with a history of “boom and bust” cycles that have many people questioning whether a bitcoin collapse is a foregone conclusion.
In 2021, the digital currency saw a rollercoaster swing, with prices as low as $23,000 in July and as high as $69,000 on November 10, 2021. However, it has been on a declining trend since 2022 and is currently worth about $29,000 (£24,000).
What is the Current State of Bitcoin’s Worth and why?
Bitcoin has been quite volatile recently, surging and dropping dramatically in response to a variety of news items. However, it isn’t the only cryptocurrency to have seen recent volatility.
As a consequence of the crisis in Ukraine, inflationary worries, and increasing interest rates, which will make it more difficult for firms to borrow money, global equities have fallen. This, paired with concerns about future regulation, has spilled over into the bitcoin market.
At the start of December, the price of bitcoin and a handful of other significant digital assets plummeted.
Cryptocurrencies plummeted once again in early 2022. By the end of January, the price of Bitcoin had plunged to about $35,000 per coin. And as the year progressed, the price dropped even more, reaching $29,000 per coin in May.
China’s continuing crackdown on cryptocurrency is also a factor. There has also been talk that crypto activities in Russia may come to a stop.
In addition, prominent cryptocurrencies have seen unexpected and significant sell-offs. As consumer confidence is shattered, this has sparked fear and subsequent sell-offs.
What Causes Bitcoin’s Extreme Volatility?
Unlike conventional investments like as stock prices, which are impacted by the success of the company or the industry in which it works, bitcoin has no underlying asset.
This implies that its price fluctuates only due to investor conjecture about whether it will increase or decrease in the future.
As a consequence, even within a 24-hour period, the price of bitcoin might fluctuate dramatically.
There have been many events that have caused the price to change:
- The price of bitcoin has fallen due to a series of unfavorable reports and fears of greater regulation.
- These are some of them:
- Russia was said to be considering banning cryptocurrency activities as early as 2022. Following the invasion of Ukraine, however, there were demands for cryptocurrency exchanges to prohibit Russian transactions.
- Tesla CEO Elon Musk said in May 2021 that the electric vehicle company will no longer accept digital payments due to worries about the environmental effect of cryptocurrency “mining” — the computational power necessary to produce digital currencies such as bitcoin.
- In June 2021, Chinese banks and payment institutions were directed to cease allowing crypto transactions, and the Chinese government outlawed cryptocurrency mining. Then, in September 2021, all crypto transactions were deemed unlawful, thereby making bitcoin and other cryptocurrencies illegal.
- Also in June 2021, then-US President Donald Trump referred to bitcoin as a “scam” that was fighting with the dollar to be “the world’s currency.”
- Over the years, FBI agents have seized millions of dollars in bitcoin from criminals.
- The Financial Conduct Authority, a British regulator, effectively banned 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.
- In the same month, the International Monetary Fund issued a warning to nations that utilize cryptocurrencies as legal cash, claiming that widespread adoption would jeopardize “macroeconomic stability” and jeopardize financial integrity.
- Last August, a hacker stole $600 million from the crypto platform Poly Network in a cyber assault, only to return more than half of it four days later, claiming they did it “for fun” and to “highlight the weakness” in the system before others could.
However, there have been several encouraging headlines that have helped to keep the bitcoin price stable during the last year:
- Morgan Stanley became the first major US bank to provide bitcoin funds to wealthy customers in March 2021 – but only up to 2.5 percent of an investor’s entire net worth.
- Elon Musk claimed in June 2021, a month after igniting a crypto sell-off, that Tesla would likely accept bitcoin payments again after renewable energy accounted for more than 50% of its energy demand.
- In July 2021, Amazon advertised a position for a “digital currency and blockchain product lead,” sparking anticipation that it might soon accept bitcoin as payment.
El Salvador declared bitcoin legal tender in September.
- In terms of what they represent for cryptocurrencies, other tales have been more mixed. The US Federal Reserve is one of them, debating whether to develop its own “central bank digital money” (CBDC).
President Joe Biden signed an executive order in March aimed at coordinating the US government’s operations on digital asset regulation.
While many crypto enthusiasts believe that regulation is a bad thing, others believe that this new executive order will aid the growth of digital assets, such as the CBDC, by ensuring that the appropriate consumer safeguards are in place.
Is Bitcoin’s Bubble about to Burst?
When the price of an asset rises rapidly and reaches a new high, a collapse – or, at the at least, a correction, in which the price falls down to a more “normal” level – is almost certain.
Bitcoin looks to be in this condition at the moment. It took 11 years for bitcoin to reach $20,000 per coin after its birth, but just three weeks for the price to double.
2013 was a pivotal year for cryptocurrency investors. Bitcoin’s price rose from $13.40 at the beginning of the year to $1,156.10 in December, before plummeting to about $760 three days later.
By 2021, the price had increased by more than 700 percent in only a year.
It’s difficult to anticipate where it’ll go next.
Will Cryptocurrency Make a Comeback?
When it comes to investing, there are no guarantees. Bitcoin has the potential to rise as swiftly as it has fallen.
Concerns concerning cryptocurrencies include the following:
- Crackdowns in China and other nations
- Environmental concerns
- Security problems
- Hackers Calls for further regulation throughout the world
- Their value is completely dependent on assumption
More regulation is considered as a danger to crypto’s decentralisation, which is affecting the pricing of digital currencies.
Bitcoin’s supporters emphasize its advantages:
- Technology that has the potential to revolutionize industries.
- Cutting out “middle men” like banks simplifies and lowers the cost of transactions.
- Easier worldwide commerce since there would be no worries about exchange rates with a non-fiat digital money.
- Transactions are more private; it’s a secure store of value since it can’t be printed or confiscated;
- Bitcoin has been hailed as a gold replacement, suggesting that it might serve as a hedge against inflation.
Given its erratic nature, it’s feasible that bitcoin may regain popularity at some time in the future (perhaps weeks, months or even years down the line).
No one, however, possesses a crystal ball. As a result, predicting whether bitcoin will fall in the future is difficult.
Will Bitcoin Appreciate if the Stock Market Plummets?
Certainly not. Bitcoin proponents perceive it as a portfolio diversifier, yet it performed no better than equities during the onset of the coronavirus outbreak. This is due to panic selling by investors.
Bitcoin fell by more than 40% in the first two weeks of March 2020.
“All stock markets took an aggressive run down due of worries over Covid-19 at that time,” says Rosie Bullard, partner and portfolio manager at James Hambro & Partners. “In a stock market reversal, it wasn’t exactly a store of value.”
However, the performance of crypto assets during a stock market crash will be determined by the reason for the crash.
Most bitcoin investors think it would safeguard them against an inflationary shock like the one that occurred in 1974.