Over the last few months, Bitcoin has observed a substantial dip in its price, leading to a mass panic among investors. From its all-time high of over $69,000 in November 2021, the price of the asset has dropped to $20,500. While there are a number of reasons for the slump in its price, let’s review the timeline of events that have taken place this year, that are responsible for the drop in the price of the asset. Before proceeding further, please keep in mind to consult your financial advisor before making any investment decisions.
Timeline of Events
Geopolitical War Between Russia & Ukraine
Bitcoin slipped below $35k in February 2022 after the Geopolitical Conflict between Russia & Ukraine commenced, from its levels of $45k, which led to a mass panic among investors. During this period, several sanctions were imposed on Russia, causing a blowback on all the countries leading to a hit on the crypto market as well. However, after the dip at the beginning of the conflict, the coin bounced back to its $42k trading levels with a steady decline.
Terra (LUNA) Crash
The price of the cryptocurrency Terra, also known as Luna, on May 5 was US$80 per coin. UST, which is pegged to the US dollar, started declining on all cryptocurrency exchanges worldwide on May 7. After a significant sell-off on May 9, its value had dropped to 35 cents, while Luna had lost all of its worth and had dropped to virtually zero. Investors in the UST lost over US$45 billion in a few days.
Due to the Terra (LUNA) Crash, investors lost approximately 96% of their investment within a week. Investors began to withdraw their funds from crypto assets and parked them in safer ones, like gold, as a result of this sell-off in one coin, which caused a widespread sell-off in the cryptocurrency market internationally.
Celsius Crash
As the price of Bitcoin fell to pre-pandemic levels, the cryptocurrency lending company Celsius Network froze withdrawals and transfers amid an apparent liquidity crunch, which led to the ‘Celsius Crash’.
Just one month after the Terra-Luna stablecoin network failed, Celsius, which offers high-yield returns on customer deposits, seems to be the newest cryptocurrency startup to falter in the face of tightening financial conditions.
All withdrawals, inter-account transfers, and Swaps have been “paused” by the Network. The corporation claims that the action will stabilize asset liquidity and increase the likelihood that withdrawal requirements may be satisfied. Investors are now debating which is better between CeFi vs DeFi.
Other Reasons for the Crash
Equity Market
According to information obtained from Investopedia, cryptocurrency values fluctuated in late 2021 and into mid-2022 in a manner akin to stock prices. If you look at the S&P 500 chart, the same can be seen right now as well as tech firms like Amazon, Tesla, and Apple falling more than 6%. In the equity market, this is significant. The cryptocurrency market also displayed a similar pattern. On Monday, the price of Ethereum, Dogecoin, and Bitcoin all plummeted under the $23,000 mark.
According to a New York Times analysis, the price changes of Bitcoin closely track those of the Nasdaq, a benchmark that is skewed toward tech firms. Although cryptocurrency markets should ideally operate independently of conventional markets, they have historically been responsive to changes in the mainstream financial sector.
Interest Rate Hike
The US Federal Reserve has agreed to raise interest rates in an effort to curb inflation. According to a Wall Street Journal story, the Fed will employ an aggressive plan to raise the cost of debt, reduce spending, and control record-high inflation. Commonly regarded as a leading recession predictor is the aggressive increase in interest rates.
Following the announcement, both the stock market and the cryptocurrency market had a sharp decline. Investors lost faith and started selling off their digital assets, which caused carnage in the cryptocurrency market.
Regulatory Challenges
The cryptocurrency market declined in January but recovered in February. As they work to regulate cryptocurrencies, governments throughout the world have been closely watching the global crypto market. Russian central bank suggested a ban on cryptocurrency use and mining in January 2022, citing risks to the country’s financial stability, residents’ welfare, and control over its monetary policy. Investors now find it challenging to determine whether investing in cryptocurrencies is the right move due to regulatory issues.
The Road Ahead
Over the years, the crypto market has seen various ups and downs, due to external factors. The confidence of investors in Bitcoin and various other cryptocurrencies has grown over the last 4 years, with more and more investors getting into the crypto space. The amount of people invested in crypto trading, NFTs and Bitcoin Mining has seen a rise since the last year. The majority of people in the world, including billionaires like Elon Musk, have invested in the technology and believe it to be the future of payments. Although many people all over the world have been impacted by this crash, the best course of action would be to invest in safer assets like remote mining because ASIC Miners’ prices have dropped significantly as a result of the decline in the value of bitcoin, providing investors with the chance to make a sizable profit. If Bitcoin follows its historical pattern, it may set a new all-time high over the next year or two, providing you with the opportunity to make enormous daily profits.
