Whether you want to invest in Bitcoin (BTC) or other cryptocurrencies, it’s important to understand Bitcoin price analysis: causes and effects. In this article, we look at Bitcoin’s rise, fall and the ramifications of both.
Between January and December 2017, this leading cryptocurrency rallied from $1,000 to almost $20,000. But in January 2018, it plunged 50% from the previous month’s high. Currently, Bitcoin price stands at $6,500, following a crash from $7,300 a couple of weeks ago. Let this guide serve as an overview for recent Bitcoin price analysis: causes and effects.
The 2017 Bitcoin Price Drop Was Not Unexpected
Though Bitcoin’s decline shocked many investors, others may have seen it coming. The 2017 Bitcoin price drop was “predicted” for months. However, because the cryptocurrency continued to gain ground despite criticism, it reassured the community of its strength. The Bitcoin community seemed to have ignored the fact that Bitcoin went through several crashes in 2011, 2013 and 2017. Also, they also ignored the warnings of analysts and economists like Paul Krugman and David Stockman. Amidst the hype, Bitcoin price climbed to unsustainable levels.
Even during the most bearish market that Bitcoin had ever seen, some Bitcoin enthusiasts continued to insist that the cryptocurrency was not a bubble and the crash was nothing major. Moreover, some claimed that Bitcoin price would quickly regain lost territory and climb to $100,000 in 2018. So far, this has not been the case.
Bitcoin Price Analysis: Causes and Effects
Bitcoin’s 2017 rally might have been partially fueled by manipulation from Bitfinex crypto exchange. Allegedly, Bitfinex used Tether (USDT), a cryptocurrency that it owns, to drive the Bitcoin price higher. Tether is said to be backed by the equivalent of U.S. dollar reserves. Half of Bitcoin price increases last year took place immediately after releases of Tether to other exchanges.
Some have expressed concern regarding Bitfinex’s operations. The U.S. Commodity Futures Trading Commission sent subpoenas to both Bitfinex and Tether in December 2017. Considering manipulation may have fueled the Bitcoin surge, it’s easy to understand why the cryptocurrency crashed.
BTC/USD Rallies Despite Unfavorable Regulatory Environment
Many skeptics regarded the regulatory environment as the reason for Bitcoin’s crash. At the time, Bitcoin was subject to fewer regulations. Though regulators warned potential investors about risks associated with other cryptocurrencies, they remained largely on the sidelines during the Bitcoin price rally.
In China, the regulatory environment was becoming increasingly unfavorable for crypto. In September 2017, China banned mainland residents from trading cryptocurrencies and prohibited Initial Coin Offerings (ICOs). Earlier this year, the Chinese government reiterated its position by announcing a crypto exchange ban.
Even though Bitcoin price, Ethereum price and that of other cryptocurrencies fell following last year’s announcement, they quickly recovered. Though it’s almost impossible to ban cryptocurrencies entirely, a ban could be enough to deter people from Bitcoin in China or the U.S.
Effects of Bitcoin Crash Are Negligible
In exploring Bitcoin price analysis: causes and effects, it is essential to take the non-crypto community into account, as well. Even though much of the crypto community was horrified to watch the Bitcoin price drop in January, the rest of the world was less shocked. For one, there had been warning signs. Additionally, the Bitcoin community was relatively small at the time. Approximately 1,000 people held 40% of all Bitcoin in 2017.
Of course, the drop in Bitcoin price affected the net worth of some major investors. Also, because there was a lot of hype when the cryptocurrency was growing, people who invested when bitcoin price was high undoubtedly lost money.
Also, the Bitcoin price drop brought the cryptocurrency to a more sustainable level and made it less volatile. Today, Bitcoin is the least volatile of all cryptocurrencies, but it also enjoys enough liquidity to be a good investment.
BTC Remains a Viable Investment
The drop in Bitcoin price did not discourage trust in the cryptocurrency. It remains the largest regarding market capitalization. Even though the price drop also dragged most other cryptocurrencies down with it, the cryptocurrency market remains strong. Moreover, it did not deter investors from the ICO market, which hit record levels in 2018.
For a large part of 2018, Bitcoin news focused around a potential Bitcoin ETF or Exchange-Traded Fund. The SEC has received ten applications for Bitcoin ETFs, but proceeded to reject nine of them. Despite this, there is a certain degree of confidence that the regulator will eventually approve an ETF, making cryptocurrency more accessible, all while providing legitimacy.
Though the price drop frightened some potential investors, the Bitcoin community remains loyal and invested. Bitcoin price analysis: causes and effects remain of the utmost relevance to the cryptocurrency market on the whole. No matter which cryptocurrencies are increasing in price, their stability is always related to the crypto that represents over 50% of the market cap: Bitcoin.