2021 has been a watershed year for the Bitcoin market . Starting the year at US $ 30,000, Bitcoins led the market by soaring nearly 70% , touching its all-time high of US $ 67,826 . Witnessing the rise, predictions of Bitcoins hitting US $ 100,000 by the end of 2022 looked well on track.
However, recent weeks’ rise in inflation and bond yields has dampened enthusiasm for speculative assets like Bitcoins. Moreover, the Federal Reserve’s three-time interest rate hike in 2022 has only added fuel to the fire, causing the most recent Bitcoin crash. Since its all-time high, Bitcoins have fallen about 40%.
The cryptocurrency, which has plummeted dramatically since hitting record highs in November, is just the latest twist in a difficult start to 2022.
It has already been on a long losing streak since last year, and experts are worried that it may fall even further before any recovery occurs if it continues to drop.
So, what is behind the plunging value of bitcoins? Will it bounce back, or is Bitcoin going to crash in 2022?
Why is Bitcoin’s Price Plunging?
The month of January is typically slow for the market, especially cryptocurrency, but 2022 has been particularly tough. The falling price of Bitcoins can be attributed to a few things:
- Kazakhstan’s Internet Blackout: Kazakhstan, the hotspot for Bitcoin mining, has broken into unrest. The government blocked the internet connection as the protests worsened, causing the mega-mining computers to shut down. Furthermore, the ongoing escalations are also contributing to the rocking value of Bitcoins.
- Removal of Pandemic Stimulus: In order to combat escalating inflation, America’s Central Banking System, the Federal Reserve System, is planning to withdraw its pandemic stimulus.
Now, in the uncertain haze of inflation rates in the US, experts are forecasting a continued crypto market crash. Mike Novogratz, CEO of Galaxy Digital and crypto billionaire, in an interview with CNBC, predicted that Bitcoin’s value could fall as low as $ 38,000, a lower bar the digital currency hasn’t touched since August 2021.
However, given that volatility is part and parcel of the crypto market, core investors won’t be bothered by the dips.
The mainstream acceptance of Bitcoin has increased over the past year. There are several reasons for this, including that the coin will act more like a Wall Street asset than a completely decentralized one. Because of this, it is unlikely that the coin will completely recover until the overall market does so.
What Caused Bitcoin to Crash in the Past?
At the dawn of Bitcoin’s popularity, people mostly put money down because of feeling, trying something new, or for keeping up with trends, and not because they fully understood things like blockchain technology . Seeing as no one wanted to be left behind once the bandwagon rolled, their enthusiasm about snagging a piece of what could be a seismic game-changer fueled super-inflated crypto bubbles.
However, all of those bubbles popped when brutal reality checks crossed paths. A number of emerging technologies were hacked, exchanges were shut down, scams and Ponzi schemes were uncovered, and government regulations were inconsistent and sometimes arbitrary. Whenever this happened, flocks of investors who were already uncertain and nervous about dealing with such an unknown quantity sought out safer , more familiar pastures.
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The most recent Bitcoin crash occurred in June 2020 when the Chinese Government clamped down crypto mining activities in the Sichuan province. As a result, the country’s banks and payment channels were ordered to stop supporting decentralized and anonymous crypto transactions.
This led to the price of Bitcoin plummeting to below $ 30,000 in a dramatic fall from its soaring success.
While other government agencies and regulators consider legislation to limit increased crypto activity often tied to laundering and crime , the cryptocurrency market has continued to rise and fall.
Countries like South Korea have also pledged to fight money laundering via cryptocurrency in the wake of the Chinese government’s move. In addition, the Metropolitan Police recently announced that it had also halted a large cryptocurrency money-laundering ring in the United Kingdom.
In the wake of the crypto crackdown, cryptocurrency exchange platforms such as Binance have been facing tremendous pressure from governments and regulators who are turning the screws on the platforms’ operations.
Therefore, Bitcoins’ increased confidence and bullish rise has been adversely affected time and again by the stern measures and increased resistance, thus constraining its growth.
Bitcoins: Is the Market Approaching Another Crash?
Since their inception, Bitcoins have been white-knuckled investors’ holdings whose value climbed from pennies to tens of thousands of dollars. Hundreds have made fortunes, but there have also been lost – often overnight or very close to it.
Even after over a decade of emerging from the complex computer networks, Bitcoin still has not gotten past its tendency for stratospheric highs and underground lows .
So, after peaking its lifetime high a few months ago, is Bitcoin again approaching a crash ?
Many crypto analysts believe Bitcoin is on the path for a sharp decline in the upcoming months. However, post surging to an almost record high of $ 69,000 in November, it is now sitting below $ 45,000, down by approximately 40% from its crest.
However, Coral Alexander, a finance professor at Sussex University, predicts that in 2022, Bitcoin can fall back to $ 10,000 , reversing all the gains in the past one year and a half.
“If I were an investor now I would think about coming out of bitcoin soon because its price will probably crash next year.” Says Alexendar
Providing the reference of Bitcoins’ value decline to $ 3,000 after hiking to nearly $ 20,000 in 2018, Alexander believes history is likely to repeat itself in 2022.
But, not everyone is convinced by the prediction of bursting the crypto bubble by the end of the year. As institutional investors become more active in the crypto market, cryptocurrency brackets claim that things are different this time .
Why is the $ 40,000 Bar Important?
There is an element of the psychology behind the $ 40k level, which Bitcoin hasn’t touched since September 2021. However, Mike McGlone from Bloomberg Intelligence believes that the $ 40,000 mark provides vital technical support for the digital token.
The largest cryptocurrency by market value crossed the $ 40,000 mark in mid-September. Though the market’s future can never be exactly predicted, experts believe the price drops below $ 40,000 could trigger major selling out. But, on the contrary, it could also lead to greater purchases due to declined prices.
Bitcoins: Not the Only Player Anymore
Bitcoins have long ruled the crypto market. Even today, Bitcoins have the largest market capitalization of all the other players. However, in recent years, the introduction of other cryptocurrencies like Etherum, Cardan, Solana, etc., has provided crypto enthusiasts with various investment options.
Bitcoin’s share of the cryptocurrency market has waned as the industry has developed, with other digital currencies like Ethereum taking a larger share. Analysts expect this trend to continue in the coming years as investors look for bigger gains in smaller pockets of crypto.
Alexander identified Solana, Polkadot, Ethereum, and Cardano as coins to watch in 2022.
According to ICHI’s network steward, Bryan Gross, decentralized autonomous organization and decentralized finance, along with other emerging crypto developments, are likely to provide the highest returns in the crypto market. Furthermore, the total deposited sum in Defi services surpassed US$200 billion in 2021 and is projected to further increase in 2022 and ahead.
Can Bitcoins Crash Overnight?
Cryptocurrency is known for volatility. Bitcoins, or for that matter, all the cryptocurrencies, usually tend to crash on weekends. Experts say these weekend dips could have serious consequences for regulators as they weigh the future of digital currency. Here are the reasons why these crashes may occur:
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Fewer Trades
One of the primary reasons behind weekend crashes is the fewer trades.
With banks closed over weekends, investors cannot add the money to their accounts, thus leading to lesser trade.
Typically, there is a rebound on Sunday nights, as Asian banks open up, followed by the western banks on Monday.
Crypto ETFs
Regardless of the cause of weekend volatility, it presents challenges for regulators considering whether to approve cryptocurrency exchange-traded funds.
Unlike ETFs, which trade during the workweek, investors have access to cryptocurrency 24 hours a day, seven days a week, and may create a mismatch with crypto ETFs.
A 20% drop in the bitcoin market on a Sunday, for example, may mean that those eager to sell their crypto ETFs will have to wait until Monday to sell them.
Margin Call
Investors who trade cryptocurrency on margin or borrow funds from exchanges to purchase more assets may also contribute to weekend price swings.
In the event that the price of the digital currency drops below a certain level, traders are required to repay the loan, which is called a “margin call.”
Exchanges may, however, sell the digital currency if investors fail to repay the loan.
Some traders may be unable to pay off borrowed funds since banks are closed over the weekend, causing exchanges to sell off, thus crashing the crypto overnight.
Bitcoins: Investments in the Long Run
With the widely varying predictions from different experts, what should you do? Should you keep investing in Bitcoins, or is it a gone game?
According to a recent Fidelity study, 52% of institutional investors own digital assets, and it’s no surprise that Bitcoin is the most popular digital asset among these large investors. In addition, the study found that 71% of institutional investors are considering diversifying into digital assets. To put it another way, they are becoming increasingly bullish on cryptocurrencies.
Ark Invest’s Cathie Wood believes that institutional investors will eventually put 5% of their investments into cryptocurrencies — a great deal, considering that they now manage more than $100 trillion in assets. By 2026, Wood believes Bitcoin will be worth $500,000, which equals a more than 1,000% gain from its current price.
Retail investors reaped massive profits from almost every popular crypto-token in 2021. While industry experts do not expect the same to occur in 2022, there is hope that crypto markets will remain stable this year.
Furthermore, despite the predictions of a crash in the near future, core investors in Bitcoins have nothing to worry about. The popular digital currency will likely produce great returns in the long run.