On Saturday, the price of Bitcoin dropped below $20,000 for the first time since November of last year, amid a larger market collapse fueled by increasing interest rates, inflation, and economic anxiety sparked by the conflict in Ukraine.
Bitcoin, the most widely used cryptocurrency, has seen a precipitous decline in value over the course of the last several months, with the price dropping below $19,000 at one point on Saturday. Its decline has been hastened in recent weeks by the failure of two big cryptocurrency projects, Terra-Luna and Celsius, which has sown worries about the reliability of the cryptocurrency industry as a whole. Since its all-time high in November, the value of bitcoin has decreased by over $900 billion.
According to R.A. Farrokhnia, a professor at Columbia Business School who specialises in financial technology, the drastic sell-offs show how intertwined and complex the cryptocurrency markets have become in recent years. This is evidenced by the fact that the markets have become increasingly volatile. According to him, the trend of investors moving their money into safer investments “creates a cascading effect on top of the contagion impact.”
During the pandemic, there was an increase in risky bets placed on assets such as “meme stocks,” collectibles such as sneakers and trading cards, and digital art and media known as nonfungible tokens, or NFTs. Additionally, there was an increase in the number of people investing in cryptocurrencies such as Bitcoin and other cryptocurrencies. The free-flowing checks from the stimulus package, the low interest rates on other investments, the excitement on social media, the widespread ennui, and the fear of losing out on the next great thing were the driving forces behind the speculation.
Bitcoin was developed to fundamentally alter the method in which individuals conduct financial transactions. The blockchain is a decentralised network of computers that keeps a permanent record of all transactions involving the digital money. This record is known as the blockchain. No one, not even governments, are able to alter or otherwise manipulate the record in any way.
The price of a single Bitcoin increased by a factor of twelve to reach $64,000 between March 2020 and November 2021. In November of 2020, it surpassed $20,000, which was a record for the month.
Newcomers have been drawn to learn about, work on, and invest in cryptocurrencies as a result of the excitement and possible riches that have been produced by the ascent of Bitcoin. After central banks flooded the economy with money, generating worries of inflation, some investors regarded Bitcoin as a secure way to deposit capital in order to avoid the effects of inflation. The quantity of bitcoins is capped at 21 million at all times because to a feature that is incorporated into the cryptocurrency itself. To this day, around 19 million have been mined electronically.
The run-up also prompted Wall Street and firms on the Fortune 500 list to become more receptive to an idea that they had previously disregarded. Both Goldman Sachs and Morgan Stanley have revealed their intentions to provide high-net-worth clients with access to cryptocurrency funds. Options for buying and selling cryptocurrencies have been developed by PayPal and Venmo, which is a subsidiary of PayPal.
Another payments business called Square recently changed its name to Block and invested $50 million in Bitcoin. This was done in part to reflect the company’s involvement with blockchain technology. Tesla made a purchase of $1.5 billion worth of it. Andreessen Horowitz, a venture capital company, has secured $4.5 billion for a cryptocurrency-focused fund, which is twice as much as it had raised for its prior fund.
When Coinbase, a cryptocurrency exchange, went public in April of 2017, with a value of $85 billion, it was a coming-out party for the sector as a whole. This was the moment when excitement reached its highest point. Bitcoin’s price reached a new high, surpassing $60,000.
El Salvador made the announcement that it will become the first nation to recognise Bitcoin as a form of legal money, alongside the United States dollar, during the summer of 2017. The leader of the nation recently modified his profile image on Twitter to feature laser eyes, which have become a symbol for those who believe in Bitcoin. As a result of Bitcoin’s price decline, El Salvador’s initial investment of 105 million dollars in the cryptocurrency has seen its worth cut in half.
The cryptocurrency business spent a significant amount of money on lobbying, which led lawmakers and mayors throughout the United States to begin advocating for the sector. New York City Mayor Eric Adams, who was elected in November, has said that he intends to accept his first three paychecks in the form of bitcoin. A regulatory framework for the business has been suggested by Wyoming Republican Senator Cynthia Lummis and New York Democrat Senator Kirsten Gillibrand. The proposal would give the Commodity Futures Trading Commission additional power, an organisation that cryptocurrency entrepreneurs have actively courted.
During the craze, celebrities helped feed the fear of missing out by promoting their own NFTs on talk shows and promoting blockchain projects on social media. This helped fuel the hysteria. This year, four advertisements promoting cryptocurrency firms were shown during the Super Bowl. One of them featured Matt Damon cautioning viewers that “fortune favours the courageous.”
This spring, that cocky confidence started to fizzle out as the stock market took a nosedive, prices skyrocketed, and layoffs began to strike the IT industry. Investors started to lose faith in their cryptocurrency holdings and moved their money into assets with lower levels of risk. A number of high-profile initiatives were unsuccessful as a result of withdrawals. Both TerraForm Labs, which was responsible for the creation of TerraUSD, a so-called stablecoin, and Celsius, an experimental crypto bank, went bankrupt, resulting in the loss of billions of dollars’ worth of value and putting the whole market into a spiral.