Why did bitcoin drop so much?

(CNN Spanish) – “Wealth favors the brave,” Matt Damon said in an advertising video, released at the end of 2021, in which he called on people to invest in cryptocurrency. Virtual currencies have been booming and after years of skepticism are finally starting to gain credibility. Now its value is in free fall: In the past two years, it’s gone from being a millionaire marketplace to a major plunge.

Earlier this week, bitcoin, the world’s most valuable cryptocurrency, lost about 70% of its value since its all-time high in November 2021, when it traded around $69,000, according to data from Coinbase. But she wasn’t the only one. Ethereum, the second most valuable virtual currency, has lost about 75% of its value. Cardano and Solana also saw declines.

It’s Wednesday and the cryptocurrency world continues to unravel, after a rough start to the week that went through due to the blocking of withdrawals and transactions on Binance and Celsius, two of the major cryptocurrency exchanges.

So, while the world’s major central banks raised interest rates to stem spiraling inflation, many investors decided to withdraw from risky assets.

How was the rise and fall of cryptocurrencies?

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Winter is over and the sun is shining

This is not the first time that the cryptocurrency market has suffered a sharp decline. In December 2017, eight years after the pseudonym Satoshi Nakamoto created Bitcoin, its price reached $17,000, an increase of 1.5000% over the previous year. But what happened next? It collapsed, and in December 2018, it was trading below $3,400, a drop of 80%.

It was around this time that there was talk of “crypto winter,” as niche media outlet NextAdvisor points out, a concept referring to the continued decline in cryptocurrency prices, or in other words, “cooling their price.”

The craze for Bitcoin and other cryptocurrencies returned in mid-2019. Winter is over, the sun is out, and the cryptocurrency is on the rise, albeit with ups and downs.

Meanwhile, governments and economists around the world have been increasingly debating the regulation of virtual currencies in the face of their growing popularity.

Corona virus pandemic

The price of cryptocurrencies is determined by the number of people interested in buying, so when no one cares, the price drops.

But as more people want to buy, its price goes up. In 2020, during the most dangerous year of the coronavirus pandemic, the value of bitcoin has risen 175% since the end of 2019, reaching $19,860.

The widespread adoption of cryptocurrencies has grown, and accelerated, in part, thanks to the COVID-19 pandemic, as they have been seen as an investment to hedge against inflation in times of economic uncertainty despite their volatile nature.

Financial Institutions, Elon Musk and Celebrities

By November 2021, Bitcoin has already crossed its all-time high and is trading around $69,000.

Earlier that year, Mastercard and Visa announced that they would allow their customers to pay in some cryptocurrency in the near future. A few months later, Venmo – PayPal’s own payment platform – also announced that its 70 million customers can buy cryptocurrencies such as Bitcoin, Ethereum and Litecoin within its platform.

Billionaire and founder of Tesla Elon Musk has become the main promoter of cryptocurrency, but he is also the one who is shaking the market the most.

In March 2021, he said that his electric car company would accept bitcoin as payment, with its price increasing by nearly 3% to $56,242. However, two months later, Musk backed down, saying that he would eventually not accept crypto payments due to the huge amount of energy needed to mine bitcoins, and their prices dropped by 12%.

By June, the billionaire launched bitcoin again on a new volatile ride when he tweeted that Tesla would start accepting cryptocurrency again once at least half of it has been mined using clean energy. Then the price of the cryptocurrency soared to more than $39,400, an increase of nearly 12.5% ​​from the day before, according to Coinbase. Ethereum price is up over 7.7%, Dogecoin is up nearly 5%.

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Musk was not the only promoter of cryptocurrency. Dozens of famous celebrities, including Matt Damon, Kim Kardashian, Tom Brady and Reese Witherspoon, have promoted the burgeoning, controversial industry. They did this through their social networks or promotional videos where they encouraged their followers to invest. This drew criticism from them for not talking about the risks involved in investing in a virtual currency that is not only volatile, but also unregulated.

Things are getting cold again

Experts say that the global climate of uncertainty is affecting the massive drop in cryptocurrency prices. With interest rates rising, stocks falling, and inflation skyrocketing, investors are turning their backs on these risky assets.

Bitcoin continues its slide and trades just above $20,000 on Wednesday, June 15, as the cryptocurrency sell-off is showing few signs of slowing. Blockchain data and intelligence provider Glassnoode has described its massive downfall as “the deepest and darkest moment.”

In addition, the turmoil has raised alarm bells among cryptocurrency investors not only due to its volatility, but also due to structural problems that make it impossible for them to withdraw their funds from exchanges and transactions.

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Binance, the world’s largest cryptocurrency exchange, suspended withdrawals for a few hours on Monday, saying that some transactions were “paused.” Celsius network, which has 1.7 million users, has temporarily suspended withdrawals due to “extreme market conditions”. They did not mention when the stock exchanges will reopen, only saying that “it will take time.”

Coinbase, the largest US cryptocurrency exchange by volume, announced on Tuesday that it will lay off about 18% of its workforce, due to a recession that “may lead to a new crypto winter and could last for an extended period of time.”

A growing number of technology start-ups or startCoinbase, like Coinbase, has been cutting staff to deal with a possible overall downturn in the cryptocurrency market and the economy.

Companies have drafted the cuts as necessary measures to deal with a change in economic conditions amid concerns about rising interest rates and inflation. US stocks fell in a bear market this week. Fear of recession is growing inside and outside the sector. Cryptocurrencies, once considered a hedge against the stock market and inflation, have also fallen.

Anna Cuban, Jennifer Korn, Jane Sahadi, Nicole Goodkind, Paul R. La Monica, Ramisha Maarouf, Alison Moro and Alejandra Ramos contributed to this report.

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