The Bitcoin Collapse Explained
It is well known that Bitcoin is incredibly volatile. It tends to rise and fall sharply on a daily basis. But it’s not the only cryptocurrency that has had a turbulent time lately.
Stocks around the world also fell due to a number of factors. Several reasons are blamed for this, including the war in Ukraine, fears of high inflation and therefore higher interest rates making it more expensive for businesses and consumers to borrow money. All of these factors have also impacted the cryptocurrency market.
The November 2022 plunge was triggered by the collapse of FTX, one of the largest crypto exchanges in the world. FTX handles approximately $1 billion in trades every day.
In June 2022, Bitcoin fell below $20,000. It was triggered by a decision by Celsius Network, a major US cryptocurrency lending company, to freeze payments and remittances citing “extreme” conditions.
The move caused all cryptocurrencies to fall below $1 trillion for the first time since January 2021.
Ether, the second-largest token after Bitcoin, fell 16% to $1,177, its lowest since January 2021.
China’s current crackdown on crypto also plays a role. And there was also speculation that crypto operations in Russia might come to a halt.
Additionally, there have been sudden and violent sell-offs in major cryptocurrencies. This sparked panic and further sales as consumer confidence was shaken.
Despite everything, it must be said that the price of BTC is currently at just over $16,600, still 66% above the September 2021 price.
The market capitalization of cryptocurrencies is significantly lower
Let’s take a look at the market capitalization of cryptocurrencies. Market capitalization is the total market value of the circulating supply of a cryptocurrency. It is analogous to free float market capitalization and is calculated from current price x circulating supply.
Currently (as of November 2022), the total market capitalization of all cryptocurrencies is $829.3 billion and that of Bitcoin is $319.3 billion, which corresponds to a 38.5% share of the total market.
As mentioned above, Bitcoin reached its all-time high in market capitalization on November 8, 2021; at that time, the market capitalization of BTC was $1,274.8 billion, and that of the overall market even exceeded $3,000 billion. Overall, the overall market has lost more than 2/3 of its value since then.
Who is responsible for the BTC crisis?
Unlike traditional investments such as corporate stocks, where price movements can certainly be influenced by company performance, Bitcoin has no underlying asset.
This means that price movements are purely based on investors’ speculation as to whether the price will go up or down in the future.
As a result, the Bitcoin price can fluctuate wildly even within 24 hours.
At present, high inflation and high cost of living crisis prompt. H people reduce their investment risk by selling their cryptocurrency.
There have also been a number of incidents that have led to high price volatility, including the aforementioned recent bankruptcy of FTX, one of the largest crypto exchanges, or China’s declaration last year according to which it would make all crypto transactions illegal, which practically meant that bitcoin was banned.
What do we need for BTC to recover?
When it comes to investing, there are no guarantees. Bitcoin could go up as fast as it fell.
There are a number of concerns about cryptocurrencies that could cloud the outlook:
- Call for more regulation around the world
- Strong measures in countries like China
- More Cryptocurrency Exchanges Go Bankrupt
- environmental concerns
- Security issues and hacks
- Your course is entirely based on speculation
Another regulation is considered a threat to the decentralization of crypto, which could affect the prices of digital currencies.
Bitcoin fans, on the other hand, point to its positive features such as:
- It is undoubtedly a transformative technology that could revolutionize industries
- Easier and cheaper transactions by eliminating “middlemen” like banks
- Easier global trade as there are no exchange rate hassles with paperless digital currency
- Transactions are more confidential
- Bitcoin is a safe store of value because it cannot be printed or confiscated.
- Bitcoin is being touted as an alternative to gold, which means it could prove to be an inflation hedge.
Given bitcoin’s volatility, it’s possible that bitcoin will regain strength at some point in the future (maybe weeks, months, or even years), but no one has a crystal ball and the speculative nature of bitcoin makes it difficult to predict accurately.
However, Bitcoin fans think now is the time to buy more BTC. If you are also a supporter of the biggest cryptocurrency and want to buy BTC, here is a complete guide on how to buy Bitcoin.