Bitcoin, the most famous cryptocurrency in the world, has become the protagonist of the market this Monday. In morning trading, the cryptocurrency technology benchmark showed a value below $24,000, which was the lowest value since December 2020.
But on Tuesday, Bitcoin fell even lower, dropping to $22.05 thousand, writes Bloomberg.
Bitcoin lost 10% of its value in a day, dropping to $22,000. Analysts attribute this to the exodus of investors
Why did the recession occur?
Bitcoin, like all cryptocurrencies, is one of the major assets with market risk. These assets are particularly affected in adverse economic conditions, such as now.
The financial market is in decline. They are driven by expectations, and the data on inflation in the US (8.6%, the highest rate in the last 40 years) turned out to be higher than expected. Thus, investors now prefer to move to less risky assets. For example, to gold.
Another event happened on Monday. Cryptocurrency lender Celsius has frozen withdrawals, adding to investor concerns. And on the news about Celsius, the capitalization of the crypto market fell below $1 trillion, which happened for the first time since January 2021.
More than $1.1 billion was liquidated in the cryptocurrency markets on Monday, according to Coinglass, the most in three months.
Also on Tuesday, the value of Asian crypto-currency companies such as Monex Group and SBI Holdings Inc.
Is price reduction normal?
Considering the circumstances that led to the decline in the main global economic indicators, such a fall can be considered logical. Experts note that cryptocurrency is a very difficult asset to evaluate, because “there are no metrics to assign intrinsic value to bitcoin.”
Analysts also point out that widespread ignorance has caused the blockchain-based technology to generate a lot of speculation around it, resulting in a very sharp decline in its value.
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On the other hand, the drop registered this Monday did not even come close to the all-time low of this currency, which has had 90% drop cycles for weeks or months.
What does the drop of this link mean for the sector
There are currently about 20 thousand different coins in the ecosystem of virtual currencies, but bitcoin is the standard for all of them. Therefore, its fall shocked the whole sector, which in recent years has become the hope of the financial system. And every drop in bitcoin affects altcoins – alternative coins.
Most of these altcoins that appeared between 2013 and 2017 no longer exist or already have a value very close to zero. Only Ethereum managed to survive these bearish cycles.
The collapse of bitcoin in the face of inflation is a complete paradox
In its original concept, this virtual currency was presented as a technology capable of solving one of the main problems of the economy. The idea was based on the fact that, despite the virtuality, there is a limited number of tokens. This feature made bitcoin very similar to the most significant depository asset with a stable value – gold.
Despite this quality of bitcoin, recessions depend on investor confidence. And it is trust that is the fundamental pillar of any financial system.