Bitcoin is no stranger to crashes. It has survived more hits than Mike Tyson in his prime. Each decline was often followed by a rapid uppercut, which was followed by an exhaling of euphoria by formerly frightened investors, resulting in a stream of relief.
What about this time? Just last week, bitcoin dropped below $18,000 for the first time since November 2020. While this is still higher than any other cryptocurrency, a 50% crash in just a few weeks is not a promising sign of the situation.
Certain events were said to set the pace for the crypto market to decline, ie the Terra/Luna crash. When a stablecoin, in principle an infallible thing, crashes, people become antsy. More than the ants, perhaps, Luna had been whittled down to almost zero, despite a billion-dollar effort to save it.
After that, Celsius, a crypto lending company, locked its users out of their accounts to prevent mass withdrawals – funds it could not provide. While bitcoin is crashing due to a number of economic factors, there is some degree of correlation between that and the major crypto establishments that stand as idealistic benchmarks of the industry.
Why is bitcoin crashing?
Contrary to what most people believe, there was no triggering effect for the bitcoin crash. Experts believe it was the culmination of many other things.
The Celsius incident certainly played a major role. This has created fear in the minds of investors. In a volatile environment, trust in the company holding your assets is sometimes more important than the assets themselves.
When users can no longer trust the source of their investment, the asset becomes a liability. This led to panic selling and liquidation of future contracts, involving bitcoin and various other cryptocurrencies.
Sentiment and social media have a significant impact on stock and crypto prices – few of us are willing to admit. A casual exchange about a certain company’s latest investments can easily turn into a buy or sell decision.
Investors also keep a close eye on financial leaders and their opinions. A product endorsement or a simple tweet can have the driving force of a nineteen wheeler against the market. We could see this at work when Elon Musk tweeted that Tesla would no longer accept bitcoin as payment. The coin fell in value shortly thereafter.
The current state of the global economy certainly doesn’t make things better for crypto. A major political conflict in Eastern Europe has led to severe economic disturbances such as rising gas prices and food shortages. At the top of the recession, the US Federal Reserve decided to raise interest rates by 0.5%, the most since 2000. This makes it more expensive for businesses to borrow money and, in turn, hurts consumers.
The downturn in the economy takes bitcoin and other cryptocurrencies with it. Holders are cashing in to contain rising prices of everyday products. Other investors believe this could be another correction but do not have a stable portfolio to wait for.
Should You Worry About the Bitcoin Crash?
At the time of this writing, bitcoin has floated slightly above $21,000. While this isn’t a dire sign, it isn’t a call for celebration. Looking at the current market situation, things can turn south any time.
On the bright side, this fits bitcoin’s general pattern of a gradual move to the top and then back to higher highs. However, no one can guarantee that this will happen again, so the best thing to do is not to make hasty decisions. Panic selling only spoils the market which certainly won’t help anyone. Some investors suggest dip buying but the problem is that it only works when there is a high probability of an asset seeing an uptrend.
Some of us will say deja vu when we hear about bitcoin crashing. For many others, it’s a recurring nightmare. Whatever boat you are sitting in, we are all drifting in the same current. Due diligence is important – try to give your own guesses more credit than some of your usual “reliable” sources.
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