For most of 2021, Bitcoin has held steady at right around $60,000 USD per coin. But now that the year is almost over, the price of Bitcoin is falling, and fast, so why is this happening?
Bitcoin’s current crash is the result of a number of different influences. It’s a combination of the holiday season, sleeping wallets coming to life, negative cryptocurrency regulations, and increased inflation which are all causing it to drastically drop in price.
Wondering how all these things are effecting the price of Bitcoin? Keep reading to find out more, and if it is a good time for you to consider a further Bitcoin investment.
Sleeping Bitcoin Wallets Awaken
One of the main reasons many speculate that the price of Bitcoin began to crash is because sleeping wallets, or wallets containing Bitcoin which haven’t moved in years, suddenly became active. This means that it is likely that Bitcoins which previously weren’t available to the market, suddenly became available.
Before you ask how just a few Bitcoins can have such an effect on the market, you should know that multiple sleeping Bitcoin wallets came online between November 2021 and December 2021, and many of these wallets had hundreds, if not more, Bitcoin in them. But don’t jump to conclusions just yet, as just because these Bitcoins moved doesn’t mean there are new millionaires out there, as moving Bitcoin doesn’t mean it’s sold. Rather, it’s owner could just be moving them from one wallet address to another.
On November 10th, when Bitcoin hit an all-time high, one wallet, which was owned by a previous miner from 2010, sent 1,000 Bitcoins to various wallet addresses in addition to 1,000 Bitcoin Cash. This money came from Bitcoin which was mined in 2010 and it hadn’t moved since. The wallet wasn’t empty yet however, and the next day a further 1,000 BTC was sent to various addresses, along with another 1,000 Bitcoin Cash.
Another address, which had been dormant since 2013, reactivated on December 19th. This address proceeded to send BTC for the first time in 9 years, spending 100 BTC. This address isn’t empty either, however, and it still contains 135 BTC. It doesn’t end there. On December 16th, a third dormant address, with no transactions since 2014 was activated and sent 25 BTC of its 225 BTC.
As you can see, this is quite a few Bitcoins to hit the market in such a short amount of time. And with the laws of supply and demand, you can see a corresponding dip has occurred as the supply has increased. But this isn’t all that is affecting Bitcoin these days.
Bitcoin and the Holiday Season
Historically, Bitcoin has always done more poorly around the holiday season. This is likely because people remove, or cash out, their investments in order to increase their spending as is customary this time of year in most nations.
The dip Bitcoin is experiencing this year is much lower than in the past though, meaning it can’t just be attributed to just the holiday season—as people simply aren’t that desperate for cash. Which is why it’s time to bring up the next culprit, the United States’ high level of inflation.
Bitcoin and Inflation
For the first time in history, the United States is reporting an inflation level of over 6%. This doesn’t mean this is the first time the US has experienced inflation like this, it simply means it is the first time it is reporting it this high. Therefore, the reality is probably much worse.
As people find their dollar buying less than it used to, they are having to cash out investments to pay bills. This is especially true when it comes to middle class Americans who became involved in the cryptocurrency world following the COVID19 pandemic. These investors typically invested a few hundred dollars here and there when they could, instead of putting it in the bank, and now, when ends won’t meet, they’ve got to pull it back out.
In addition, these people now have less money to invest. So those who were recently becoming avid monthly investors, now have no leftover money for any investment because they must spend it on necessities. This has further lowered the demand for Bitcoin.
Negative Bitcoin Regulations
The cherry on the cake for the Bitcoin crash of December 2021 was when the US Securities and Exchange Commission denied a Bitcoin ETF being added to the stock market listings. Had this been approved, it is highly likely many people would have invested thousands of dollars in the crypto market. Because it was denied, many investors who had purchased Bitcoin in anticipation of the Bitcoin ETF being allowed, likely decided to sell their positions and purchase something else.
Plus, China is on one of its no-crypto binges (they change their opinion every week it seems) and this has caused many mining operations in the country to be deemed illegal. Worried about the slow production of Bitcoin, many with negative emotions towards the market decided to exit their positions.
Should You Buy Bitcoin?
Although the outlook may seem bleak, it is absolutely a great time to buy Bitcoin. This is because Bitcoin really still is the best cryptocurrency out there, and like any asset on the stock market, you’ll want to get it when it is cheaper. Do remember however, that any investment in cryptocurrency does carry it’s risk, and you should only invest money you expect to lose.
You can try to time the market to buy at the bottom, but this doesn’t usually work. You’ll just be waiting for forever to try and get the best price. Instead, you should look towards an investment tactic like dollar cost averaging where you put the same amount of money into Bitcoin each month regardless of the price.
Overall, there is never a bad time to buy Bitcoin. And during a market slump like the current one, you should absolutely be looking more into investing in cryptocurrency. Just keep in mind that there is no one reason why the market is slumping right now, and therefore there is no way to predict when the market will go back up. Don’t wait too long, otherwise you may miss a great opportunity.