The value of Bitcoin and other cryptocurrencies has dropped significantly from their recent highs. Bitcoin’s price hit an all-time high around the middle of April. As of a month later, the value of the largest digital currency had dropped by more than 41%.
Those who are just getting started with the section on how to trade cryptocurrency must find this current downturn very unsettling. Anyone familiar with Bitcoin’s past could have predicted this decline.
There Have Been Crashes in the Past, and There Will Be Crashes in the Future
This crypto market meltdown is nothing new. Visual Capitalist reports that there have been three significant drops of 80% or more in Bitcoin’s value since 2012. When viewed in this light, the present decline of 41% is very moderate.
To be clear, it’s not always a good idea to analyse stocks by looking at their chart patterns. After all, shares stand for fractional interests in actual businesses. Businesses develop, become more stable, and eventually change through time. They can even fail sometimes. It’s for these and other reasons that stock prices don’t always follow a trend.
Contrarily, cryptocurrencies do not take the form of enterprises. The digital ledger technology known as blockchain networks, which serves as the foundation for cryptocurrencies, can really be used in practical settings. However, each blockchain has its own characteristics. There is no assurance that the value of digital currencies tied to blockchain technologies will rise as their use spreads.
If anything, we see cryptocurrency as a straightforward example of supply and demand. When coin demand exceeds supply, coin prices rise.
It’s challenging to foresee Bitcoin’s demand. However, previous collapses occurred when the usefulness over the long term was questioned. When China first declared limits for cryptocurrencies in 2017, Bitcoin, for instance, experienced a significant decline. The latest crash is worsened by new clarifications from China, which state that its citizens may no longer utilise it as a method of payment. It’s not uncommon for other countries to propose their own cryptocurrency regulations.
As soon as there is any uncertainty about Bitcoin’s long-term viability, demand drops, along with the price. Bitcoin still has a long way to fall from its present price, especially if the current meltdown follows the historical pattern of a decline of 80% or more. If Bitcoin were to fall by 80% from its all-time high, its price would fall to about $13,000.
The Phoenix Always Rises from Its Own Ashes
There will never be more than 21 million Bitcoins in circulation, as stipulated by the protocol governing their creation. Roughly 18.5 million people are alive today. However, Bitcoins continue to be “mined” and added to the currency supply on a regular basis. At present, the mining of new blocks results in the creation of approximately 900 new Bitcoins every day.
To counteract this, the Bitcoin mining reward is halved every four years. What has just happened is referred to be a “halving event.” The initial reward for mining a block was 50 Bitcoins. However, because of three halving events, the current reward per block is only 6.25 Bitcoin. Previous halvings happened on November 28, 2012, July 9, 2016, and May 11, 2020.
Many Bitcoin investors anticipated substantial returns in the year 2020. In retrospect, the years 2013 and 2017, right after the halving occurrence, were two of Bitcoin’s best ever. This is plausible and accurate even in the year 2020. Assuming that demand will persist, the increased cost is due to the reduced supply. A price increase eventually dampens consumer demand, and the market responds by lowering prices.
Final Thoughts
Since nobody can predict the future, it is impossible to say whether Bitcoin’s price will rise or fall in the near future. Bitcoin’s price is predicted to rise after the second halving event in 2024. In the past, halvings often served as inciting events.
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