Bitcoin is down seventy percent from around $70,000 to $20,000. These types of Bitcoin downside swings are not new. It has happened before, such as in 2018 with a drop from $22,000 to a stable bottom of around $3,500. The difference is that in 2018 bitcoin was worth $3,500 and now, four years later, the bottom is around $20,000.
It is in this type of decline that those who are against Bitcoin claim that this cryptoactive is a mere bubble, and that its natural value should be zero. They forget or omit that many companies have similarly seen their market value drop by thirty or even seventy percent.
They also ignore that fiat money (issued by the States) has a natural tendency to be worth zero. Let them say it, for example, to the nationals of Venezuela or Bolivia with a collapse of their currency of sixty percent. We can also cite notorious cases such as “Meta” (Facebook) that has lost sixty percent of its value with shares that have dropped from $380 to $150. “Zoom video communications” has gone from 480 dollars per share to 115 dollars per share. Even Netflix has gone from $700 per share to $180 per share, down more than seventy-five percent, bigger even than Bitcoin.
Are these companies a mere bubble? Should they be worth zero? According to the theory of those who criticize bitcoin, yes.
What has affected so that Bitcoin has fallen?
Some of the events that have affected this drop in Bitcoin are the following.
First of all, the demise of cryptocurrencies like Terra and USDT. Its fall, of 60 billion dollars, has in turn dragged other platforms such as Celsius, or Ventures Capital as “Three Arrows”. The upward trend of the crypto world has contracted, with large losses, which has caused losses in some investors of up to one hundred percent. People who do not know this market, and have entered a bullish period, are currently fleeing to avoid further losses. Those who know it, know that it is a long-term, volatile investment, in which you have to enter periods of decline, such as the present.
Secondly, there is the effect of rising interest rates by Central Banks. Bitcoin has been branded as “digital gold”. It is a proposal against inflation, but in the medium and long term. The rise in interest rates makes investors look for other alternatives of profitability such as the German bond. The greater the rise in rates, alternatives for profitability arise that in the short, medium or even long term compete with Bitcoin, forcing it to generate more profitability. These investors, who are looking for these alternatives, sell their bitcoins, generating a market decline.
And finally we find those who have bought bitcoin with leverage or loan. Their positions have been reducing their value until suffering the liquidation of their positions in what is called “margin call”. This withdrawal of funds, in turn, generates further declines in Bitcoin. There is a curious case that is that of Michael Saylor, who requested a loan of two hundred and twenty million dollars to acquire 19,000 bitcoins. If the value of Bitcoin drops below $11,600 per Bitcoin, “Silvergate” will liquidate 19,000 units of bitcoin on the market, an even bigger drop than seen so far. That can be a very high drop in a single day.
The opinion of the President of BAS, Ignacio Ferrer-Bonsoms
My conclusion is that these types of market adjustments are very positive, in a world in which efficiency and correct regulation of the code prevail.
Those projects that are not well regulated or codified, like Terra, will disappear. And those protocols or proposals that do not offer anything new to the market will also disappear.
When can the market recover? It seems that it will be from April 2024, with the new Bitcoin halving. At least it has been that way in the past. Those who don’t believe in Bitcoin, wait until 2025 or 2030. We’ll talk then.