The cryptocurrency world is a complex one since there are so many different aspects that influence the value of a certain coin. Therefore, you can be sure that taking part in this market will require a lot of knowledge on your behalf. At the same time, you will need to go through a high of news every day to keep up with the latest developments.
Following all these developments is not always the easiest thing, since numerous elements affect the value. Besides that, you must find the platform you can use for trading. If you are not sure where to start looking for the one that suits your needs and preferences, then be sure to pay a visit to https://bitlq.app/.
As we all know, Bitcoin is the best-known cryptocurrency out there. Even though many believed some of its competitors will become more important than it in the future, this is not what happened. Recently, we have witnessed a significant drop in Bitcoin’s value. Let’s take a look at the reasons why this has happened and explore them a little bit.
1. Increased Interest Rates
The first, and most important thing you need to know about the drop in Bitcoin’s value is the increasing interest rates. Of course, the interest rates skyrocketed in the last couple of years due to the financial crisis in the world, and this is something that has progressed in the last two years, especially in 2022.
The same can be said about practically all other financial institutions out there, like banks. Nobody should be surprised that digital currencies have experienced a drop. It needs to be said that it is not certain when the interest rates will go down again since there are no tendencies that this might happen.
2. Institution Demand Weakened
The next thing we want to talk about is the weakening of institutional demand. The current global financial and energetic crisis has caused a drop in demand in the digital currency market. If you take a look at certain reports from the most reputable sites out there like Coinbase, you will see that it was a pretty low turnout in the last couple of months.
Think about it, just 2 years ago, the situation was completely different. The value of Bitcoin was at its highest, which was around $66k. Two years later, we can see that it is currently at $23k. Even though BTC is known for its massive ups and downs, which are mostly unexpected, this is quite a big drop.
Today, BTC has managed to recover a little bit from the big crash that it experienced in the last couple of months. However, it is more than clear the prospects don’t look as good as for the future. Naturally, that doesn’t mean that the market will not recover at one point, but it will not occur in the immediate future.
3. The Inflation
During the early days of the COVID-19 pandemic, we can see that Bitcoin hasn’t experienced too many problems, except for the first couple of months. It managed to get its value up pretty easily, and since then, it didn’t experience any sort of problems. However, 2022 is the year when the problems started for it.
But when the governments started inserting massive amounts of money into the fiscal system of the country to save their economies, it had a significant effect on Bitcoin and practically all other digital currencies. However, it should be said that this problem occurred with a little bit of delay, until 2022.
At the same time, the financial problems caused a lot of crypto traders to withdraw their investments from the market. So, nobody should be surprised why the value dropped significantly. When you add the current situation in Europe into the mix, then you have a proper understanding of why the inflation and how it caused a drop.
4. Speculation and Manipulation
As is the case with practically any other market out there, you will see that digital currency is disrupted by manipulation and speculation. A good example is the occurrence that happened immediately after the statements made by Elon Musk on Twitter. Depending on what he said about it, the value came to go up or down.
Not to mention that frequent scams can influence the market as well. Of course, the credibility of the market is crucial, and these things can damage it quite a bit. We can find a lot of stories of this happening in the last decade. Still, we want to point out that they are not as common as they used to be some time ago.
5. Funding Stress
The final reason we would like to talk about is known as funding stress. If you take a look closely, you will see that this downfall started back in February 2021, then it slowed a little bit, and then it witnessed a major downfall during the final months of the same year. Last year, the average price of Bitcoin was around $30k, and now it is slightly over $20k.
One of the major reasons why funding stress occurred is the liquidation of major funds from the market, around $300 million. If you take a look at the general market cap, you will see that this fund is around 30% of the market. So, you can understand just how big of a problem this was for the complete market.
At the same time, we can see that a lot of other cryptocurrencies have experienced the same struggle as well. Practically all of them lost a significant chunk of their value. When you think about it, it makes perfect sense this is the case since Bitcoin is the largest player on the market and smaller ones depend on it.
As you can see, Bitcoin’s situation doesn’t look good at the moment. Still, we are more than assured its value will rise in the future. Here, you can take a look at a couple of reasons why it has declined in the last two years, especially in the last couple of months.