Cryptocurrency Bitcoin, considered the most popular digital currency in the current era, has seen its price plummet in recent times for a number of expected and unexpected reasons.
An increase in negative headlines and catalysts, including Tesla CEO Elon Musk and a new round of regulations by the Chinese government, threaten to pull bitcoin and other cryptocurrencies to their lowest prices in years.
In a down day for cryptocurrency, the flagship currency dropped over 30% to about $30,000 at one point, dropping by nearly three months. The drop follows a week of volatility in the crypto market.
In contrast to the dramatic rise in the second half of last year, the recent slide reverses that trend. Since September, the price of bitcoin has still increased more than 200% with a bull market being driven, in part, by hedge fund managers, banks, and other companies who appear to embrace cryptocurrency.
What Causes Sudden Drop In Bitcoin?
In addition to bitcoin’s weakness, a temporary reversal in the theory of wider acceptance for crypto seems to be contributing to bitcoin’s price decline.
Musk told investors earlier this year that he was buying it for the company’s balance sheet for more than $1 billion. In recent months, several payment firms have announced that they are upgrading their capabilities to support more crypto actions, and major Wall Street banks have started finding ways to integrate crypto trading into their client services.
As a result of Elon Musk’s on-and-off-again approach to digital currencies, certain financial instruments have gained sway. Despite this, Musk announced last week that Tesla will no longer accept Bitcoin as payment, citing concerns about environmental impact. Although he did not disclose Tesla’s plans for selling its bitcoin holdings, he did suggest that the company did not intend to do so. Chinese regulators recently banned crypto transactions, which was the latest blow. In addition to clearing and settlement, trading, and even registering for cryptocurrencies are prohibited.
Institutional Investors Are Pulling Out Of Bitcoin
Moreover, institutional investors appear to be moving away from bitcoin and going back to gold. Cryptocurrency is often touted as a potential replacement for traditional metals as stores of value.
There are signs of weakness across the crypto market, suggesting that investors may be removing themselves from more speculative trades.
Stocks in the technology and growth sectors, many of which outperformed the broader market during the Coronavirus outbreak, have also suffered in recent weeks.
Crackdown By Chinese Authorities
Regulations around the world are also increasingly scrutinizing bitcoin and related assets as they become an increasingly important part of the financial markets.
In addition, government crackdowns on cryptocurrencies could lead to another ‘crypto winter’ and lowered trading activity. The potential for harsher crypto crackdowns in developing countries has grown because many individuals and governments are concerned that cryptocurrency poses a threat to fiat currencies.
China’s bitcoin traders once accounted for a huge share of the market, but their influence has decreased significantly since the crackdown. A number of Chinese cryptocurrency companies have moved overseas.
Several hundred billion dollars evaporated from the bitcoin market alone last week. It’s not uncommon for moves of that magnitude to occur on the volatile cryptocurrency market.
In terms of Bitcoin’s outlook, things may seem grim, but historically, this is just a hurdle among many that the cryptocurrency has already endured.
The Current Bitcoin Status
Bitcoin’s price swung in wide ranges, often due to the unpredictability of market conditions.
It is recommended that long-term investors follow through with their original investments or change their minds before selling their crypto holdings.
The bitcoin price has seen more than 750 instances of a daily change of 5% or greater in the past 11 years, and 230 instances of a daily change of 10% or greater, and nearly 50 occasions where it moved by 20% or more.
There is a common phenomenon called cryptocurrency market correction. Although a bear market has not yet begun, it is unlikely.
To Conclude
Although that doesn’t mean that past results are a guarantee of future results, bullish investors tend to lean on those two factors when advocating long-term ownership of bitcoins and similar assets.
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