If you have ever wondered why is Bitcoin crashing, here are some reasons why. Many cryptocurrencies suffer from a lack of trading liquidity on weekends. Probably the main issue for Bitcoin this past weekend was uncertainty surrounding the omicron Covid-19 variant. Investors shifted their funds to safer investments as they felt less secure. This is exactly what happened to Bitcoin this past weekend. We all have our own reasons for avoiding risky investments on weekends.
Fear
As Bitcoin plunges to new lows, the market sentiment index has fallen to its lowest level in more than a month. The last time it reached such low levels was two years ago, after the COVID crash. The price of bitcoin dipped to $809 billion before recovering to its July peak. The sentiment index of bitcoin fell to eight, a level indicating extreme fear. According to Sharat Chandra, vice president of EarthID, investors are selling after getting tired of swinging prices and the fear of Bitcoin crashing.
Uncertainty
Many economists believe that sky-high inflation is the primary factor in the recent plunge in cryptocurrency prices. The Fed has been tightening monetary policy to curb inflation, and it raised interest rates by half a percentage point last week. However, the underlying reasons are more complicated. For example, Russia hasn’t shown any signs of easing its aggression in Ukraine. Consequently, a high level of uncertainty has created a risky environment for the crypto market.
Doubt
The recent collapse of many digital currencies has caused panic in many investors and cryptocurrency enthusiasts. This has led to a deluge of new coins, such as bitcoin and ethereum, being lost. There are many reasons why a crypto could crash. Some people blame the fact that the supply of Bitcoin is finite. The supply of Bitcoin is actually fixed at 21 million coins, but there are only about 18.5 million coins in circulation right now. Bitcoins are created on a constant basis, with 900 new coins released each day as blocks are mined.
Competition
The reason why Bitcoin crashed is largely due to competition. The bubble bursting took place in early April, with the market capitalization dropping by over 70% within a week. This occurred because of announcements of instability by the MtGox exchange, the largest Bitcoin exchange by volume. In addition, a hacker attack had negatively affected the exchange, causing the price to crash. The market responded to these announcements with panic, driving down the price of Bitcoin.
Volatility
Cryptocurrency has been notorious for its instability and ongoing turbulence. Before investing in a cryptocurrency, it’s important to understand why cryptocurrencies crash and what it means for your portfolio. Volatility is the ups and downs in an asset’s price measured against its average up or down trend line. The most common reasons for this are the emergence of new technologies, fears of the “downs” that could occur, and concerns about the environmental impact of mining the coins.
Public opinion
While the fast-money crowd fueled the price spike, regulators could have done better to codify regulations and ensure that investors were protected from the risks of investing in crypto. Thinly capitalized companies rushed into the crypto derivatives and lending market without properly gauging the solvency of middlemen. Individuals failed to understand the basic truth about bitcoin: It doesn’t need leverage to deliver a positive return.