Bitcoin has been on a rollercoaster ride, experiencing some potentially major fluctuations in price. Not only are big platforms like Coinbase seeing a decrease in transactions, as many investors are feeling the pinch, but crypto has dropped to some of its lowest levels this year.
(Image Source: CoinDesk)
There are some important factors to consider when asking why crypto is falling in price. Inflation is currently at a record high, with the cost of living increase, which has also brought with it fear and a loss of confidence. These fears are based on the economy as a whole rather than being directly related to the crypto market.
Amongst this, cybersecurity experts are warning of a potential hacker attack in the midst of this price drop, saying that it seems like an organised ban could be at work. With major markets around the world on a crash for lower, investors are getting nervous as to what this means to their portfolios.
But before we start blaming Bitcoin for the recent instability that has been seen in markets all over the world, we should stop and think about why and how it is crashing. There are many factors that could explain the recent fall from the grace of Bitcoin.
Why is Bitcoin crashing?
Some individuals would like to blame the fall of Bitcoin on cybercriminals. These individuals would say that a large number of cybercriminals have been using Bitcoin to launder money from their illegal activities. Some have even gone as far as saying that this is one of the major reasons why Bitcoin has been crashing.
The argument here is that if you look at the rate at which cybercriminals have started switching to digital currencies, then you could easily conclude that they are more likely than not to cause the crash of Bitcoin.
The problem with this argument is that cybercriminals would have to use a significant portion of their money to convert it into Bitcoin, which is difficult given the transparency of blockchain technology in most cases. If they had a significant amount of money, then they could easily spend it on something else, like luxury goods.
This argument makes sense, but it doesn’t explain why and how the value of Bitcoin has been crashing. Cryptocurrencies, such as Ethereum, are experiencing similar crashes for all the same reasons. There is no evidence that cybercriminals are behind the price drop of these cryptocurrencies either.
Another factor that could explain the recent fall is the fact that Bitcoin is no longer profitable for mining. This means that people who use their computers and smartphones to mine Bitcoin will incur losses over time, especially in areas where the cost of electricity is high.
The reason why this could explain why Bitcoin has been crashing is that many miners have started converting their mining equipment into dollars, which explains the decline in BTC value, but this theory does not explain why other cryptocurrencies, such as Ethereum, are experiencing downward movements as well. Again, there are no special factors related to these cryptocurrencies and cybercriminals.
The real reason why Bitcoin has been crashing is that many investors are now starting to realise that the currency has a lot of volatility. Investors that bought into Bitcoin and other cryptocurrencies during the December bull run were expecting them to go even higher than at present, but instead, they started crashing.
Many people are afraid of losing money in these volatile markets and have been trying to use their financial resources to protect themselves by liquidating their assets as quickly as possible.
This has led to a lot of people converting or selling off their assets, which explains why the value of many cryptocurrencies has started to dip. With numerous crypto apps, wallets and high-speed internet, it has become easier to sell cryptocurrencies. If you have no money to convert into Bitcoin, then it will very likely continue to plummet in value.
Bitcoin and investors
If you are an investor that has been holding onto your Bitcoin and other cryptocurrencies, then you have most likely seen a significant amount of gains and losses over time. This is because the value of cryptocurrencies has been going up and down as they are being bought and sold by investors.
The problem with this is that unless you have money to convert into Bitcoin, then there is nothing you can do to protect yourself from potential losses in value. If you try to exchange or sell off your assets for cash, then prices for Bitcoin will continue to fall as it becomes harder for investors to find a willing buyer.
This is just one of the many problems caused by market volatility when investing in Bitcoin. The main problem is that the value of Bitcoin and other cryptocurrencies is supposed to be linked to a fixed amount of assets, which means that no matter how much investors decide to buy or sell, it is supposed to have some kind of effect on the price.
Most investors argue that the current situation could not have happened without someone manipulating the markets, causing a loss in confidence. Since there is a significant amount of work required for people to make money from cryptocurrencies, many believe that someone has taken advantage of this situation and is using their resources to manipulate cryptocurrency values.
The problem with this argument is that there is no real proof or solid evidence as far as we can see. In fact, it is impossible to prove that someone has been manipulating the market or that they are even behind it.
Bitcoin and other cryptocurrencies are not inherently different from stocks, as both have incredible potential. However, just because something could be worth a lot of money doesn’t mean that it will be.
The real reason why Bitcoin has been crashing is that investors are losing faith in the currency, which means they will dump their holdings sooner rather than later. This means that any investor considering buying into the currency should first understand why people are dumping their assets before deciding whether it is a good idea to invest in them.
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A Fall From Grace: Why Is Bitcoin Crashing? was originally published in Level Up Coding on Medium, where people are continuing the conversation by highlighting and responding to this story.
Dmytro Spilka | Sciencx (2022-08-31T17:10:31+00:00) A Fall From Grace: Why Is Bitcoin Crashing?. Retrieved from https://www.scien.cx/2022/08/31/a-fall-from-grace-why-is-bitcoin-crashing/
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