Is It The End For Bitcoin?

Bitcoin prices have continued to drop, and investors are concerned that the original cryptocurrency may be on the way out.

This week, Bitcoin fell a further 5.83 per cent, with a price shrinkage of 0.7 per cent in one hour. Current trades value BTC at £17,335, a 71.3 per cent stretch from the token’s all-time high of £64,424.

Although Bitcoin is one of the thousands of digital currencies and utility tokens, the potential fallout if this crypto giant collapses is that it could bring the rest of the market down.

The Bitcoin Downward Slide

At the start of 2022, Bitcoin was in a happy place. BTC was trading at values nearly double that of January 2021, following a 12-month period that saw a surge in mainstream investment in the crypto market.

By January, the cryptocurrency had lost almost all of the gains, falling to around £29,000.

Today, one Bitcoin is valued at £17,344 according to Coinbase, reflecting a 49.88 per cent drop within a year, although it remains the most significant cryptocurrency available with a market cap of £332 billion.

Part of the problem is linked to the general global economy, with Bitcoin tracking stock markets and feeling the pinch of increasing interest rates, inflation and a drop in investor confidence.

2021 Cryptocurrency Trends

The end of the pandemic saw a significant increase in crypto investment volumes, with financial advisers, wealth managers and everyday investors looking to incorporate crypto into portfolios and investment funds.

While regulatory oversight remains a controversial issue, and restrictions vary between countries, the general acceptance of crypto as a legitimate asset and trading currency changed the face of the market.

A survey last year by TurboTax reported that 51 per cent of US crypto owners had invested within the previous 12 months.

Most new investors opt for a prominent, well-known cryptocurrency such as Bitcoin or Ethereum. Both reaped the rewards, with BTC hitting a high of £59,700 in November 2021. Ether climbed from the previous average of around £647 to trade at the £2,600 mark.

The cryptocurrency industry as a whole also grew, reaching a £1.76 trillion market cap.

However, even in periods of overall success, cryptocurrencies can and do commonly fall by around 15 per cent within hours, and are often volatile, even if longer-term trends are positive.

Stablecoins are the exception, but challenging global economics and market sell-offs were bound to dent the wins made by digital assets in a uniquely buoyant post-pandemic period.

How Global Inflation Burst The Bitcoin Bubble

The weakened economy caused by the COVID-19 crisis started to make an impact in 2022, following a short-lived ‘rebound’ where investors and consumers took advantage of lifting restrictions to offload excess demand that had built up during lockdowns.

We are now in a bear market, indicated by ongoing price declines, further exacerbated by the conflict in Ukraine, raw material scarcities and political instability.

In possibly the worst conditions since cryptocurrencies first entered the markets, even Bitcoin has been pushed off the forecast growth curve.

It is far from the worst affected. In May 2022, TerraUSD, previously a relatively large stablecoin, collapsed alongside the sister currency LUNA, losing the peg against the US dollar and leaving investors to watch £439 billion wash down the drain.

Serious failures on this scale do little to shore up investor confidence and mean that the market will take longer to recover – as investment principles indicate it should.

The reality is that crypto is inherently volatile, and investors have always taken the risk that they might lose in a big way – in contrast to other asset markets, which move slower, with more reliable technical indicators to predict pricing fluctuations.

Another factor is that the total market is small compared to conventional asset classes. For example, today’s global crypto market is worth around £875 billion, whereas gold and equities have market caps of £9.68 trillion and £68.3 trillion, respectively.

This lack of liquidity means that cryptocurrencies can move suddenly and dramatically, and until or unless digital currencies are integrated further into financial infrastructure, this will remain the case.

The Potential Impact Of A Bitcoin Collapse

The fundamental reason crypto investors are alarmed at the backslide in Bitcoin values is that it dominates the market and comprises 37.75 per cent of the overall cryptocurrency market cap.

Stablecoins have a market cap of £134 billion and a market share of 15.34 per cent as the next largest.

If a cryptocurrency of this size fails, it could puncture the entire market – although the impact on wider financial stability would likely be insignificant. The Bitcoin ecosystem is small, next to the scale of other financial instruments and a collapse would be minor compared to the US subprime mortgage crisis that destabilised the national economy.

Some big banks have bought into the crypto craze, but most have limited exposure if any.

Bitcoin could fall further, but the price is likely to recover in time, with substantial investments in blockchain technology and the fact that cryptocurrencies have emerged as a store of value.

Most analysts expect that as mainstream applications realise the utility of cryptocurrencies, the overall market will grow in importance and feel the current pricing drop is a natural market course correction that was inevitable following last year’s market run.

Bitcoin Pricing History

Bitcoin was the first cryptocurrency, originally valued at zero, and didn’t gain traction until 2010, when BTC rose from fractional prices to around £0.08. Cryptocurrencies and blockchain technology were mostly unheard of at the time.

In 2011 Bitcoin broke the $1 marker (£0.88) and rose around 3,000 per cent, peaking in June 2011 at £26 before crashing back down to £1.76 five months later.

We saw a similar scenario in 2013 as interest in crypto slowly grew, mostly through online forums such as Reddit. Bitcoin hit around £900 in November 2013 before reverting to £465 within 30 days – and a pattern began to emerge.

The cryptocurrency stalled during 2014 and 2016, wavering around similar market values, but came back to life in 2017 with its first proper bull run. Prices doubled in May before soaring to £16,600 by the end of the year, and early-stage investors saw initial investments of a few hundred pounds turn into millions overnight.

Increased media coverage and the sudden price jumps brought Bitcoin mainstream, with thousands of new Altcoins minted, excitement from investors and interest from economists.

However, the same highs and lows have always been present, with BTC varying from £2,800 to £15,400 during 2018.

The pandemic hit economies hard, but inflationary pressure on fiat currencies made crypto attractive, and the Bitcoin price grew 300 per cent in 2020, ending the year at a high of £25,800.

The rise slowed, faltered and backpedalled in 2022, losing nearly all of the gains, with a downward but slowing reverse trend.

We can’t know what the year ahead holds, but most crypto analysts expect Bitcoin to remain steady before exploding upward again – as it has already done multiple times over.

Is It The End For Bitcoin FAQ

Will Bitcoin prices recover?

Many crypto experts believe Bitcoin will eventually pass $100,000 (£87,830), although it may take longer to get there than originally anticipated.

Predictions, of course, vary among analysts. Most forecasts indicate a potential valuation of £24,590 in 2022 and £87,830 at some point between 2023 and 2024.

The range of forecasts is significant, with some suggesting that Bitcoin will be outpaced by newer cryptocurrencies and others expecting the token to be worth millions as it reaches market circulation capacity.

Why is it so tough to predict what Bitcoin will do?

The nature of cryptocurrencies and their relative infancy in the economic markets means that every prediction you read is a form of speculation.

There isn’t any exact formula for analysing crypto trends, and even if there were, forecasts are simply what one analyst perceives to be the likely outcome, not a certainty.

What factors impact the Bitcoin market price?

Demand is the primary value driver across all crypto tokens, and some investors use it as a hedge against inflation. Speculation that Bitcoin and blockchain as a whole will transform industries such as banking and gaming capture investor interest.

Why has 2022 been such a bad year for Bitcoin?

The current bear market has forced Bitcoin to divert from its established growth trajectory in what some analysts believe to be the worst market conditions in the 14 years since Bitcoin first appeared.

Although conventional wisdom dictates that the market will course correct in time, as crypto is so unpredictable, this isn’t necessarily a given.

Is now the right time to buy crypto?

Market values are undoubtedly far lower now than they have been for several months. Still, crypto remains a volatile digital asset, and investments should always be made with an understanding of the risks involved.

Some cryptocurrencies may recover in a year or two and surpass their previous peak values, whereas others may fold.