This week saw the value of Bitcoin taking a dramatic plunge to slump below the $60,000 mark. This was a fall in value of 10% and it wiped billions off the crypto market with other cryptocurrencies such as Ethereum also being affected. It also marks the first time that Bitcoin has fallen below $60,000 since late October.
It comes after the implementation of an upgrade in the Bitcoin network which initially triggered a price rise, but this was followed by a sell-off that saw the crypto’s value dip down to around $59,000.
Bitcoin had appeared to have been strengthened by the rollout of the Taproot update last weekend. Taproot is a new feature that aims to improve the scalability, security and privacy of the cryptocurrency. However, the successful introduction of Taproot didn’t do enough to stave off concerns about several other key areas that have affected Bitcoin’s market value.
There are multiple theories as to why Bitcoin suffered its temporary price wobble. The fact that the Securities and Exchange Commission rejected a bid to launch a physically backed ETF in the US was certainly a big blow. However, this didn’t initially appear to provoke much of a market reaction at the time, and so there could be other reasons behind the mass sell-off.
Many Bitcoin investors were surprised to discover that Twitter’s chief finance officer, Ned Segal, ruled out the social media brand investing in the cryptocurrency. Segal said that investing in cryptocurrencies ‘doesn’t make sense right now,’ as the assets are simply too volatile at the moment. As such, Twitter would be investing in securities that offer less extreme price movements.
Plus there is a much wider skepticism over how cryptocurrencies are allowed to function. China’s crackdown on crypto mining soured the market earlier this year and this has certainly stunted the price rise of Bitcoin.
However, the most likely reason is that this is simply how the market reacts to periods of growth. With long-time Bitcoin holders seeing an opportunity to withdraw profits from their assets, it would probably have triggered a further sell-off by panicked new investors.
The fact that crypto markets shrank to less than $3 trillion is a testament to just how volatile these assets are. Bitcoin wasn’t the only cryptocurrency to be hit hard by Tuesday’s market turbulence. Many other leading cryptos such as Ethereum, Solana, Cardano, Dogecoin and Shib Inu also saw their market values drop significantly.
Ethereum was worst-hit with a 11% drop over the course of the day, while Solana was down by 10%, although it’s worth noting that the value of Solana has grown by 15,000% since the start of 2021.
This comes at a time when most of these cryptocurrencies had enjoyed record highs just a week before. As such, many analysts have suggested that the crypto market was suffering from a case of ‘excessive optimism’ in recent weeks. But with the value of Bitcoin being 300% higher compared to this time last year, there is still room for positivity in the market.
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