Bitcoin: Why is the largest cryptocurrency crashing?
The first rule of writing about Bitcoin is that you shouldn’t write about Bitcoin.
The story of the best-known cryptocurrency in the world is moving incredibly fast, and its fans will soon be lining up to tell you that you’re wrong about everything.
But we have to write about it because the last 24 hours have been terrible for the biggest cryptocurrency, even by Bitcoin standards.
I’m going to focus on Bitcoin here, but if you keep up with the crypto market, you know that to put it mildly, the whole market is in trouble.
As I write this, the price of Bitcoin is $21,974, which is about £18,000. It has dropped by 25% in just the last five days, making it the lowest it has been in 18 months. It seems like a long time ago that it was worth almost $70,000 in November.
Experts say that this is because of the climate in the whole world. Not only in the world of cryptography do things not look good.
Inflation is going through the roof, interest rates are going up, and the cost of living is getting harder and harder to pay. The stock market is also shaking, and the S&P 500 in the US is now in a bear market (down 20 percent from its recent high).
Because of this, even big investors have less control over their money. And many regular investors, like you and me, have less money to invest in anything, period. These aren’t rich hedge fund owners or big companies.
Many people feel that investing in something as volatile and unpredictable as cryptocurrency is too big of a risk right now.
It’s not regulated or protected by the government, so if you invest your savings in it and it goes down in value or you lose access to your crypto wallet, you’ve lost your money.
Last month, two less well-known but still important coins went down in value, which hurt a lot of people’s confidence in the market as a whole.
Because of this, more and more people are deciding to sell up.
The more people sell Bitcoin, the less it’s worth because its value is tied to how much people want it. This makes more people want to sell because they can see the price going down, and so the cycle keeps going.
Katie Martin, the editor of FT markets, says that Bitcoin is different from more traditional assets in that it doesn’t have an inherent value. It doesn’t have any bricks and mortar, a revenue stream, or a business behind it.
She tells me, “The price is only and only what people are willing to pay you for it.”
“When that happens, people start to feel scared because if enough people run for the door, there won’t be a floor. It could trade for $10,000 tomorrow if enough people give up or are forced to sell.”
Why right now?
So Bitcoin was already in a tough spot, and then these things happened in the last 24 hours:
Binance, the world’s largest crypto exchange, stopped all Bitcoin withdrawals for a few hours. A crypto exchange is a platform for trading cryptocurrencies. They said this was because of a “stuck transaction,” but not everyone believed them.
The cryptocurrency lender Celsius did the same thing, but it said it was because of “extreme market conditions” instead of technical problems. And now, the Coinbase exchange just said it will lay off 18% of its employees, blaming the “crypto winter” in part.
When investors got scared, they sold even more Bitcoin.
The first two made people scared. Imagine if you couldn’t get money out of your bank all of a sudden, or you heard that other people couldn’t. You and everyone else would be at the nearest cash machine in record time, which would cause even more chaos and confusion.
What can turn things around?
In a nutshell, people who still have Bitcoin would need to keep it and more people would need to start buying it again for it to be stable. This has been the case before.
Crypto fans will tell you that now is a great time to buy because it’s cheap, but you have to be patient and wait for it to turn the corner. This is always how it has been.
One of them just sent me a tweet that said, “The pump will always happen.”
The stories of people who “got rich quick” and the endorsements of well-known celebrities do bring in new money.
Elon Musk has tweeted a lot about how much he loves crypto, and last year his electric car company, Tesla, put $1.5 billion into Bitcoin.
But investment advisers urge tremendous caution.
Altaff Kassam, the managing director of State Street Advisors, said on BBC Radio 5 Live’s Wake Up To Money show, “It’s a place where only the brave should go.”
In October 2021, Hollywood star Matt Damon starred in a cryptocurrency ad with the slogan “Fortune favors the brave.” It happened at the Super Bowl, and 28 million people have seen it on Twitter and YouTube.
But the “brave” people who bought Bitcoin when the ad came out probably don’t feel like they were “done a favor” now, since it was worth about three times what it is today.