What causes bitcoin to crash?

These advances show that cryptocurrencies have a larger market now and are becoming more popular. Major cryptocurrencies fell to two-month lows this week due to concerns about market liquidity and regulatory repression. Cryptocurrency prices can be drastically affected by important events, such as the fall of stock markets or the fall of currencies. They can also sink due to rising interest rates, rising inflation, and other macroeconomic factors that can affect people's confidence in investing their money in risky alternative assets.

Unprecedented inflation, fear, rising interest rates, and a loss of confidence in cryptocurrency investments all contributed to the fall of cryptocurrencies. Analysts say that most of the factors are “macroeconomic”, meaning that they are related to the economy as a whole and not to any defect in the cryptocurrency market. Binance reportedly froze Bitcoin withdrawals to give miners additional time to settle the backlog of pending transactions. The higher volume of transactions has caused Bitcoin miners to rapidly increase fees, which has had an impact on cryptocurrency exchanges.

Cryptocurrencies, such as Bitcoin, are volatile and have a history of “boom and bust” cycles that have left many wondering if it's safe to invest. A New York Times report revealed that Bitcoin's price movements are very similar to those of the Nasdaq, a benchmark index that tilts towards technological stocks. If everything were an inflationary shock, as happened in 1974, most bitcoin investors believe it would be a protection. If you feel safe and have extra money to invest, you can buy Bitcoin or any of the alternative currencies on one of the major cryptocurrency exchanges.

Bitcoin supporters see it as a diversifying element in balanced portfolios, but it fared no better than stocks at the beginning of the coronavirus pandemic. Given its volatile nature, it's possible that bitcoin will regain momentum at some point in the future (perhaps in a few weeks, months, or even years from now, or maybe not at all). One of the main concerns about cryptocurrencies, including bitcoin and Ethereum, is their lack of environmental credentials. Unlike traditional investments, such as company stocks, where price movements can be influenced by business performance, bitcoin has no underlying asset.

Bitcoin and Ethereum are leaving S&P 500 in the dust, with an increase of around 70% and 50% so far this year, respectively. Bitcoin can be considered an indicator of the global cryptocurrency market, as even alternative currencies, such as Ethereum, follow bitcoin trends. Prices have been under pressure after cryptocurrency exchange Binance twice stopped Bitcoin (BTC) withdrawals earlier this week. According to the Cambridge Bitcoin Electricity Consumption Index, the amount of electricity consumed by bitcoin mining per year could boil enough water for all the cups of tea consumed in the UK for 30 years.

There is no doubt that the bitcoin bubble has burst, as investors have lost confidence in the cryptocurrency sector.

Harvey Edgeman
Harvey Edgeman

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