collapse of Bitcoin is an economic event that has surprised the world a lot and is expected to continue in the very short term. However, in the medium term, a supply rigidity is expected that will help this cryptocurrency to regain value and stability from before.
One of the reasons why the value of Bitcoin fell is that few addresses own the largest number of cryptocurrencies. That reduces liquidity in the markets, because the currency is concentrated in a few hands and most people have difficulty buying them.
Why does the Bitcoin crash happen?
Bitcoin is not the only cryptocurrency that has suffered sharp declines in the market, as many others have lost 70% or more. Frequent investors are uncertain as to why these things are happening, after this has been an efficient way to deal with inflation.
During 2017, Bitcoin barely reached 1,000 dollars, but for the month of November 2021 its value was 67,000. However, now it barely reaches $19,000, which is why many people have doubts about the true value of this cryptocurrency.
The large increases that took place between 2020 and 2021 have an explanation, which was the pandemic, where social contact decreased a lot. It was believed that all economic movements and transactions would become digital, disappearing any physical social interaction that caused contagion in a massive way.
This belief was what increased the value of all crypto assets and made people interested in investing heavily in the market. But with the normalization of activities, little by little people returned to face-to-face interactions and the world's common economic movements increased.
Factors that decreased Bitcoin prices
In March 2022 there was a rate hike, which caused Bitcoin to lose 46% of its value until the last few days. The well-known company Bloomberg, through its most important cryptoactive index, has corrected the value of Bitcoin in the market by 51%.
As the system is very complex, experts believe that prices will continue to fall, and it is difficult to stabilize them because there is no common valuation. It is a behavior similar to that of stocks on the stock market, which depend on the reputation and demand for products and brands.
The cryptocurrency market is highly fragmented, in addition to the fact that there are many currencies involved in different transactions at the same time on a speculative basis. The liquidity that appears in the market disappears almost immediately, which generates distrust in investors and prevents the increase in demand.
The measures of the Central Banks and the rises in interest rates have also caused the prices of cryptocurrencies in general to decrease. To this is added the possible recession in the US, which generates significant pessimism in people, regarding the current macroeconomic situation.
Other features of the Bitcoin crash
Supply and demand is another element that has greatly influenced the crash of Bitcoin, because they do not have perfect conditions. However, supply is expected to be low and demand high so that prices can rise again and recover lost money.
The main investors that maintain a stable level of demand are institutions, companies and other consumers who bet on the digital market and cryptocurrencies. On the other hand, it is that the liquidity of Bitcoin is not in accordance with the number of coins that are in the market and in circulation.
There are few transactions with Bitcoin, since between 3% and 7% of people who use Bitcoin used it as a payment method. Experts say that these figures are 2% less than the total number of people who have Bitcoin or continue to invest in the market to buy.
