The coronavirus crisis has seen Bitcoin price nosedive in one of the greatest Bitcoin price crashes since its inception. With a 52% drop in price in a single week, the coronavirus has left many Bitcoin enthusiasts scratching their heads. Even the legendary crypto trader, Peter Brandt, who predicted Bitcoin’s peak way back in 2017, tweeted that he wouldn’t be shocked if it crashed to $1,000 and below.
Will Bitcoin recover from such a huge crash? And can it still be trusted to store value over time? These are just some of the questions that people are seeking to answer, and the uncertainly over the answers is part of the reason behind the huge sell-off. But before judging Bitcoin too harshly, it is worth noting that even fiat markets have crashed thanks to the coronavirus mayhem. In fact, equity markets have seen their worst crash since 2008.
Here are some logical reasons why Bitcoin is crashing:
People Prefer Holding Cash When in Crisis
The huge sell-off in both equities and cryptocurrency can be explained by the notion that cash is king. When people panic, they quickly resort to hoarding cash due to fear that the prices of their investments will nosedive. Investors are taking back their money with the intention of buying back into the market at the bottom, while the rest of us are just responding to fear and uncertainty. Additionally, Bitcoin is yet to be fully accepted as a mode of payment, and people want to have enough paper money to buy food and medicine just in case the crisis worsens by the day.
Late adopters of Bitcoin and cryptocurrencies may not appreciate the value of hodling their Bitcoin amidst the swings in the market. Analysts believe the huge sell-off is from investors that got into Bitcoin in the last 1-2 years. In their fear of losing more than they have already lost, they are cutting their losses and cashing out. Serious hodlers have been into Bitcoin for years and have already seen huge dives before, so the current crash shouldn’t make them quite as nervous. The early adopters understand from experience that every time Bitcoin goes down, it inevitably bounces back.
Cryptocurrency is a highly speculative market. This, compounded with the fact that it is relatively new when compared to other markets, makes it very volatile. Additionally, there is no central body that regulates prices. When trading on the stock market, regulating authorities can suspend trading sessions when there is an unprecedented sell-off. In fact, trading was put to a stand-still quite a number of times on the NYSE this past week to safeguard investors from losing too much due to traders that are responding to fear. Since Bitcoin doesn’t have any such body regulating it, sellers can dump their shares of Bitcoin anytime. Bitcoin is also one of the easiest markets to enter. Traders and investors do not need to have a brokerage account in order to participate in the market. This also attracts investors of all kinds of experience levels, and that contributes to the huge speculative nature of Bitcoin.
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Bitcoin price has dropped significantly as a result of the coronavirus outbreak. However, price surges are anything but new in cryptocurrency. Once this crisis is over, Bitcoin and other cryptocurrencies will most likely recover as they have always done after a sharp decline. It is not clear how far Bitcoin price will drop, but, however far it drops, it will most likely bounce back. This could be a great time to buy Bitcoin and just wait for the bounce back.
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