This Monday we discovered the extent of the last fall in the price of Bitcoin. In six months, the cryptocurrency has lost nearly 50% of its value: after a peak in November at nearly 60,000 euros, the price has fallen below 30,000 euros. The thing is, 2022 is not a good year for crypto.
As we explain in this article, more than $643 million in investments have gone up in smoke since the beginning of the year. We are emerging from a phase of euphoria with very low key rates, and a pandemic which has led many small investors to take an interest in cryptocurrencies.
Why has Bitcoin been falling since November?
But with the return of inflation and the economic recovery, central banks are raising their key rates, which increases the cost of money and diverts some crypto investors towards more predictable assets. The bond market, in particular, is becoming more interesting.
At the same time, the stock markets have been feverish since the start of 2022. However, with the arrival of institutional investors in cryptocurrencies, market changes seem to be increasingly correlated with stock market variations.
Added to this are two issues that make the situation worse: the war in Ukraine and the sanctions against Russia are adding fears of increased regulation and other disruptions – while driving some large investors targeted by the sanctions out of the market.
Not to mention that the uncertainty reinforces the shift of investors towards less risky assets. Bitcoin is not the only cryptoasset to suffer from the situation since Ether is also unscrewing like many other cryptos.
50% drop may seem catastrophic: after all, on November 9, 2021, the total capitalization of Bitcoin was $1.263 billion… compared to just $587.06 billion on May 9, 2022 – in other words more than 675 billion dollars literally flew away during the period.
But we are still very far from the worst of the corrections suffered by Bitcoin. This infographic from Visual Capitalist takes stock of the upheavals in crypto, along with the events that most likely caused them.
Thus we see that Bitcoin remains quite volatile. The last comparable fall dates from April 2021: at the time it all started with Elon Musk’s reversal, who finally decided not to accept Bitcoin as a means of payment at Tesla.
Bitcoin remains a fairly volatile crypto
For the rest, we note a majority of corrections between -29.6% and -60.8%. But Bitcoin still experienced three much more serious crashes, with a price drop of more than 80%. In April 2013, Bitcoin found itself a victim of its own success.
The main exchange Mt. Gox could not cope with the strong influx of investors amid the hype around cryptocurrencies. When the site finally crashed, hackers made things worse by making it harder to get back to normal.
Which forced Mt. Gox to temporarily suspend operations. The Bitcoin price then fell from $260 to just $50. Between November 2013 and January 2016, the crypto price also fell by 86.9% – the all-time high.
At the time, this sharp drop was part of China’s decision to ban cryptocurrencies. A ban in several phases – the first was content to prohibit financial institutions from touching this type of asset.
However, any mention of the word “regulation” at the time caused panic in the courts, and the Chinese decision was the most impactful to date in this area. Between December 2017 and December 2018, Bitcoin also lost 84% of its value.
Bitcoin, Ether: exit from the tunnel at the end of 2022… or in the course of 2023?
2017 was an overall good year for Bitcoin, with the price breaking the then-record, peaking near $20,000. But on December 27, 2017, investors began to believe that the high price was the effect of a bubble.
What followed was a brutal wave of earnings recovery that sent the cryptocurrency price plunging below $12,000. The price then remained low on the daisies throughout 2018 on the back of major hacks in Japan and South Korea – the effect of which was worsened by the hovering rumor that these countries were on the verge of to follow China’s lead on crypto regulation.
We already know that the year 2022 should continue on a cloudy note for the crypto market, like the stock markets. Rapid changes in the world order, war, sanctions, rising interest rates, inflation…
All of these are signs that the period is not conducive to this type of investment. Thus, market players are currently falling back on commodities and other types of safer assets. It remains to be seen whether the uncertainties weighing on the market will be lifted by the end of 2022.
…or if we already have to prepare for the crypto winter to extend into 2023. What do you think of the current crypto market situation? Have you changed your investment strategy? Share your feedback with the community in the comments area!