When Is Bitcoin Cash Opening Again

Cryptocurrency is volatile, with a track record of "boom and bust" cycles that leave many wondering if a bitcoin crash is inevitable.

The digital currency had a rollercoaster ride in 2021, sinking as low as $23,000 in July but also hitting an all-time-high price of about $69,000 on November 10, 2021. However, it has been on a downward trajectory throughout 2022 and now has a value of about $29,000 (£24,000).

In this article we explain:

• What is happening to the value of bitcoin and why
• Why is bitcoin so volatile?
• Has bitcoin's bubble burst?
• Whether bitcoin will recover
• If bitcoin will go up if the stock market crashes

Bitcoin has taken its investors on a rollercoaster ride in 2021, where is it heading next?

What is happening to the value of bitcoin and why?

Bitcoin has been volatile of late, rising and falling sharply on the back of a number of news stories. But it's not the only cryptocurrency to have had a tumultuous time recently.

Global stocks have gone into a downturn as result of the war in Ukraine, inflationary fears and higher interest rates, which will make it more expensive for businesses to borrow money. This has spilled over into the cryptocurrency market, combined with fears over further regulation.

The price of bitcoin and a number of other notable digital assets dropped heavily at the start of December.

In early 2022, cryptocurrencies fell again. Bitcoin's price dropped to about $35,000 per coin towards the end of January. And it has sunk even lower as the year has gone on, with the price hitting $29,000 per coin in May.

China's continued crackdown on crypto is playing a part too. And there has also been speculation that crypto operations could come to a halt in Russia.

In addition to this, there have been sudden and severe sell-offs of major cryptocurrencies. This has triggered panic and further sell-offs as consumer confidence is knocked.

Why is bitcoin so volatile?

Unlike traditional investments such as company shares, where price movements may well be influenced by the performance of the business or the sector in which it operates, bitcoin has no underlying asset.

This means that the movements in its price are based purely on speculation among investors about whether it will rise or fall in future.

As a result, there can be violent swings in the price of bitcoin, even in the space of 24 hours.

There have been a number of incidents that have caused the price to fluctuate:

Negative stories

A number of negative stories and threats of further regulation have pushed the price of bitcoin down.

These include:

• Early in 2022, it was reported that Russia might ban cryptocurrency operations. But then, after the invasion of Ukraine, there were calls for crypto exchanges to ban Russian transactions.
• In May 2021, Tesla boss Elon Musk said that the electric car maker would no longer be accepting digital payments over concerns about the impact of cryptocurrency "mining" – the computing power required to create the likes of bitcoin – on the environment.
• In June 2021, banks and payment institutions in China were told to stop enabling crypto transactions, and the Chinese government banned the mining of the currencies. Then in September 2021, all crypto transactions were declared illegal, in effect meaning that the likes of bitcoin were banned.
• Also in June 2021, then US president Donald Trump described bitcoin as a "scam" competing against the dollar to be "the currency of the world".
• FBI agents have seized millions of dollars in bitcoin from criminals down the years.
• In August 2021, UK regulator the Financial Conduct Authority in effect blacklisted Binance, one of the largest crypto exchanges. Big banks such as HSBC and Santander followed suit by blocking customers from making payments to Binance.
• In the same month, the International Monetary Fund issued a warning on countries using cryptocurrencies as legal tender, saying its widespread use would threaten "macroeconomic stability" and could harm financial integrity.
• Crypto heist: last August, a hacker stole $600m in a cyber attack targeting the crypto platform Poly Network, only to return more than half of it four days later saying they did it "for fun" and to "expose the vulnerability" in the system before others did.

Positive stories

But there have been more positive stories, and these have given the bitcoin price some protection over the past year:

• In March 2021, Morgan Stanley became the first big US bank to offer wealthier clients access to bitcoin funds – albeit restricted to no more than 2.5% of an investor's total net worth.
• In June 2021, a month after sparking a crypto sell-off, Elon Musk said Tesla would probably accept bitcoin payments again when more than 50% of its energy usage came from renewable sources.
• Amazon posted a job advert for a "digital currency and blockchain product lead" in July 2021, prompting speculation that it would soon accept bitcoin as payment.
• Last September, El Salvador made bitcoin legal tender.

Other stories have been more mixed in terms of what they mean for cryptocurrencies. Among them has been the US Federal Reserve considering whether to launch its own "central bank digital currency" (CBDC).

In March this year, President Joe Biden issued an executive order that aims to co-ordinate the US government's actions on the regulation of digital assets.

While many crypto fans think regulation is a bad thing, some think this new executive order could help with the development of digital assets, such as the CBDC, to ensure the right consumer protections are in place.

Read our article here if you are still wondering whether or not to invest in bitcoin.

Has bitcoin's bubble burst?

When assets rise very quickly in price and surge to a record high, typically this makes a crash much more likely – or, at the very least, a correction, which is when the price falls back down to a more "normal" level.

This appears to be the situation that bitcoin is in right now. It took the cryptocurrency 11 years from launch to get to $20,000 per coin, but only three weeks for bitcoin's price to double from there.

A decisive year for crypto investors was 2013. Bitcoin's price went from $13.40 at the start of the year to its height in December of $1,156.10, before falling to about $760 three days later.

Fast forward to 2021 and the price had soared by more than 700% in 12 months.

Where it is heading next is equally unpredictable.

Check out one Times Money Mentor reader's crypto experience: "Bitcoin's rollercoaster ride has swept me to an £8,500 profit in less than a year"

Will crypto bounce back?

There are no guarantees when it comes to investing. As quickly as bitcoin falls, it could just as rapidly climb again.

There are a number of concerns about cryptocurrencies:

• Crackdowns in countries like China
• Calls for greater regulation across the globe
• Environmental concerns
• Security issues and hacks
• Their price is based solely on speculation

Further regulation is seen as a threat to the decentralisation of crypto, which is having an impact on the prices of digital currencies.

Bitcoin's fans point to its positive qualities:

• Transformative technology that could revolutionise industries
• Simpler and cheaper transactions by cutting out "middle men" such as banks
• Easier global trade because, with a non-fiat digital currency, there would be no concerns about exchange rates
• Transactions are more confidential
• It is a  safe store of value because it can't be printed or seized
• Bitcoin has been touted as an alternative to gold, meaning it could prove itself as a hedge against inflation

Given its volatile nature, it is possible that bitcoin will gather momentum again at some point in the future (perhaps weeks, months or even years down the line).

But no one has a crystal ball. So it's impossible to say for sure whether bitcoin will crash in the future.

Find out more about the tips (and mistakes to avoid) when investing with cryptocurrencies.

The market prices of cryptocurrencies are highly volatile

Will bitcoin go up if the stock market crashes?

Not necessarily. Supporters of bitcoin see it as a diversifier in balanced portfolios, but it did no better than stocks at the start of the coronavirus pandemic. This is because investors panic-sold everything.

In the first two weeks of March 2020, bitcoin went down over 40%.

"That was when we saw all equity markets take an aggressive leg down because of concerns about Covid-19," notes Rosie Bullard, partner and portfolio manager at James Hambro & Partners. "So it wasn't exactly a store of value in an equity market reversal."

"If you look back to March of last year when we saw the market collapse, you didn't see bitcoin suddenly rally in that period."

Rosie Bullard, partner and portfolio manager at James Hambro & Partners

That said, how crypto assets perform during stock market falls will depend on why financial markets have collapsed.

If it was all about an inflationary shock, such as happened in 1974, most bitcoin investors believe it would provide protection.

If you want to read more about the alternatives to bitcoin, check out our article here.

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Source: https://www.thetimes.co.uk/money-mentor/article/is-bitcoin-crash-coming/

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