Cryptocurrencies had a bad day on the markets following a brief post-Christmas rally. Bitcoin was one of the hardest-hit cryptos suffering a loss in value of 5.4% to be worth less than $47,000. Overall, December saw Bitcoin losing 17% of its value making this month the worst month’s performance since May when the world’s largest cryptocurrency lost 35%.
It has been yet another trading week that showed just how volatile Bitcoin is. While Tuesday saw the crypto creeping back up to the $50,000 mark to post a high of $49,307, the slump on Wednesday saw Bitcoin valued at just $46.647. It’s a bitter blow for many crypto fans who had believed that Bitcoin would smash the $100,000 barrier in 2021.
The fact that the cryptocurrency cannot sustain a value of above $50,000 means that a dip towards $40,000 is far more likely. Plus with market uncertainty over the monetary policy of the Fed along with a resurgent pandemic, it could be a tricky few months for the crypto.
Why Bitcoin is on the ropes
There are multiple reasons behind Bitcoin’s relatively flat month. This week will see hundreds of thousands of options contracts expiring that are worth approximately $6 billion. Plus the Federal Reserve is in the midst of imposing multiple measures to stave off the rising inflation across the country. With a proposed three interest rises due in 2022, it means that volatile assets such as cryptocurrencies will become a lot less attractive to investors.
These reasons are something of a contrast to May’s shocking month where the 35% drop in value was attributed to a greater amount of regulation being proposed and implemented in China and the US. While it was an uncertain time for Bitcoin, the cryptocurrency has largely managed to shake such concerns to enjoy decent gains in October before uncertainty struck again in November.
Environmental concerns remain one of the biggest obstacles for Bitcoin to overcome. Spring saw Tesla dropping Bitcoin as an accepted payment method as a result of its negative environmental impact. With the news that the supposedly more eco-friendly DogeCoin would be trialled as a payment method at Tesla in 2022, it was a bitter blow for Bitcoin advocates.
Other cryptocurrencies have been seen as making gradual inroads into Bitcoin that has seen its overall crypto market share decrease to be below 40%. Ethereum has had an incredibly strong year with the rapid popularity of NFTs in the realms of art and gaming helping the crypto make a yearly gain in excess of 300%.
Plus with thousands more alt-coins all offering something different to Bitcoin, the original cryptocurrency is at risk of losing much of its appeal. However, it’s worth noting that while Bitcoin has had a difficult month, it’s still been a spectacular year for the cryptocurrency with an overall gain of 63% in 2021.