What’s New This Time Around?

Bitcoin’s recent crash may be the end or the beginning of a new era for digital currency.

The last twelve months have seen Bitcoin experience both good and bad times.

Last November was a great time for digital currencies. They were trading at over $60,000 under the influence of investor enthusiasm and cheap money.

This November is the worst, when Bitcoin trades at a mere one-fourth of that amount, $16,500. This is due to investor pessimism and expensive money.

It is not the first time that Bitcoin has experienced such high volatility. The value of the digital currency surged to around $6,000 and $20,000 by the end 2017. It then dropped below $4,000 a year later. It rallied again between the Fall of 2020 and the Spring of 2021. It rose from approximately $10,000 in September 2020, to $61,000 by March 2021.

However, the rally did not last for long. A few months later, the digital currency fell to $30,000 again.

The bottom line is that every Bitcoin crash created the conditions for another rally, driving the digital currency to new heights.

Is history going to repeat itself?

Most likely, not. There are a few things different this year.

One, money is not cheap anymore. In the last 12 months, money market interest rates rose from nearly zero to 3% to more recently. U.S. Treasury Bills yield over 4%. This raises the risk of holding cryptocurrencies which have no yield.

Two, the collapse of one of the largest cryptocurrency exchanges has shaken institutional investors and individuals in the entire sector.

Investor confidence is key to cryptocurrency rallies.

The promise of Bitcoin or any other cryptocurrency replacing national currency is also a promise. El Salvador was an unsuccessful experiment.

Some true believers still believe in digital currency. Walker Holmes is vice president at Metatope.

Holmes wrote in an email, “Bitcoin is still young and the entire digital asset market is in its infancy.” International Business Times. Extreme volatility should be expected.

Holmes went on to compare Bitcoin’s price pattern with that of popular stocks — though these stocks are assets. He stated that Amazon, a major player, has seen its stock price decline by as much as 40%. “Things may slow down in the short term but we are approximately 18 months from the next Bitcoin halves and this is a great indicator of when to anticipate parabolic movements up for digital assets. Traders must weigh the potential risks and the rewards of trading to determine if they’ll be able to keep the market in good shape.

Cathie Wood from ARK believes that the recent Bitcoin collapse is part of digital currency’s growing acceptance. She said that it will allow Bitcoin to “come out from this smelling like roses” and reach $1,000,000 by 2030.