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Is a bitcoin crash coming?

Cryptocurrency can be volatile, with many people wondering if a bitcoin collapse is possible.
The price of digital currency was on a rollercoaster in 2021. It reached an all time high of $69,000 on 10/11/2021. However, the Bitcoin price today has dropped to $47,000 since 2022.

Bitcoin has taken investors on a rollercoaster ride. Where’s it headed next?
Why is crypto-currency crashing?

Bitcoin has been on a wild ride, with sharp rises and falls due to news stories. But, it wasn’t only Bitcoin that experienced a turbulent finish to 2021.

Continued uncertainty about a new Covid variation and higher interest rate have caused a downturn in global stock prices. It will also make it more expensive to borrow money from businesses. This uncertainty has spilled into the cryptocurrency markets, as well as concerns about future regulation.

The price of bitcoin, and other prominent digital assets, dropped significantly at the beginning of December. Bitcoin dropped again in early 2022. It was worth around $40,000 for each coin by the end of January.

China’s continued crackdown against crypto and US interest rate increases are two of the reasons why there is concern. There have been rumors that Russia could ban crypto operations.
Why is Bitcoin so volatile?

Bitcoin has no underlying asset unlike other investments, like company shares.

Its price does not depend on how a business performs but on whether investors believe that bitcoin will rise/fall. Therefore, the price movements are not based on how it will perform.

There can be dramatic swings in bitcoin prices within 24 hours. There have been many incidents that have caused bitcoin’s price to fluctuate.
Negative stories

Bitcoin prices have fallen because of a number of negative stories, as well as threats of more regulation. These include:

Russia might ban cryptocurrency operations
Elon Musk declared that Tesla would not accept cryptocurrency payments after expressing concern about the environment in May 2021.
Chinese government has imposed sanctions on June 2021 for mining and trading bitcoin.
Donald Trump later described bitcoin as a “scam” that was competing against the dollar and called it “the currency for the world”.
UK banks block payment to crypto exchanges
FBI agents seized bitcoins worth millions from criminals
UK’s financial watchdog has banned Binance from being listed as one of the most important crypto exchanges. Santander, HSBC and other big banks follow their lead
IMF warnings: In August, IMF warned countries against using cryptocurrencies to pay for goods and services. The IMF stated that widespread use of cryptocurrencies would pose a threat “macroeconomic stability”, and can harm financial integrity.
Crypto Heist – Crypto hackers Poly Network rob $600m of August’s funds only to return more then a third 4 days later. They claimed they did it for fun and to “expose a vulnerability” in their system before others.

Positive stories

However, the price has risen in the past year due to positive stories.

Morgan Stanley was the US’s first major bank to give wealthy clients access to bitcoin funds. However, that access is limited to no more than 2.5% a client’s total net worth by March 2021.
Elon Musk claimed that Tesla will again accept bitcoin payments when its energy consumption is greater than 50% from renewable sources.
Amazon advertises for a lead in digital currency and blockchain products, leading to speculation that Amazon may soon accept bitcoin as a payment method.
El Salvador made bitcoin legal tender

There are other stories that have mixed outcomes in terms of cryptocurrency. The Federal Reserve, the US central bank is considering whether to create its own cryptocurrency.

A US President Joe Biden issued an executive to coordinate US government action regarding regulation of digital asset. While many crypto enthusiasts believe regulation is a bad thing for the industry, some people think that this executive orders could aid in the development and protection of consumers.

Is the bitcoin bubble over?

A crash is much more likely when assets go up in value quickly and hit a record-breaking high. Or, at the very minimum, a correction. That is when price falls to a more normal level.

This appears to be bitcoin’s current state.

It took cryptocurrency 11 years to reach the $20,000 mark, but only three months for its price to increase by half.

2013 was a pivotal year for crypto investors. Bitcoin’s prices rose from $13.40 in the beginning of the year, to $1,156.10 at December’s peak, before dropping to $760 three-days later.

Fast forward to 2021. In just 12 months, the price had risen by 700%.

It is impossible to predict its next destination.

Will bitcoin rebound?

There are no guarantees in investing. You can see bitcoin falling as quickly as it can climb again.

There are many concerns with cryptocurrencies.

China, China, and India are under severe pressure
International calls for greater regulation
Environmental concerns
Its price can only be determined by speculation

Further regulation is seen in relation to crypto’s decentralization, which is having an effect on the price.

Bitcoin’s advocates point out its positive aspects:

The transformative technology that could revolutionize industries
Reduce the “middle man”, for simpler transactions and lower costs
Easier global trade
Transactions are more confidential
Safe store of value that can’t be printed on or seized
Bitcoin has been promoted as an alternative gold. Therefore, it could be used as a hedge against inflation.

Due to bitcoin’s volatile nature, it is possible the currency will gain momentum again in the near future (possibly weeks, months or years).

There is no way to know if bitcoin will crash, and nobody can see the future.

Is bitcoin likely to rise if there is a crash in the stock markets?

Not necessarily. While bitcoin supporters believe it can be used as a diversifier to balance portfolios, it didn’t perform as well in the face of stocks at the outbreak of the coronavirus. This is because investors panic-sold every asset.

Bitcoin dropped over 40% during the first two week of March 2020.

Rosie Bullard (partner and portfolio manager at James Hambro & Partners) says that this was the time when equity markets saw an aggressive decline due to concerns over Covid-19.

“So it wasn’t exactly an asset store of value in a equity market reversal.”

“If you go back to March 2017, when the market crashed, you will see that bitcoin did not suddenly rally during that time.”
Rosie Bullard portfolio manager at James Hambro & Partners, and partner with James Hambro & Partners

However, what happens to crypto assets when the stock market crashes is dependent on why financial markets collapsed.

Most bitcoin investors believe it would provide protection if it were an inflationary surprise, like what we saw in 1974.