Why Did Bitcoin Drop? On the 4th of December, Bitcoin faced a flash crash. And fell to $42,019, a 40% crash following the all-time high of $69,045.
It has merely been a month since the all-time high. Bitcoin shares similarities with Ethereum’s movements. Furthermore, there has been speculation of Ethereum taking over Bitcoin in dominance over the next few months. Driven by liquidations of long positions. And macroeconomic factors. The flash crash is considered bullish for long-term investors. And bearish for retail investors who have become more risk-averse following recent market movements.
The pricing movement is largely affected by macroeconomic factors.
The US Federal Reserve announced plans on tapering following their meeting in December. As a result of this move Treasury bond yields rose. And announcements came out of increased regulations in the cryptocurrency space across multiple jurisdictions.
Margin calls also contributed largely to the play. As they were forced out of their positions by traders. As a result, causing mass liquidation. Resulting in over $2.5 billion worth of cryptocurrency liquidations. The crash is also an accumulation of multiple events. In causing fear within the cryptocurrency market and in generating headlines.
Moreover, the tightening of regulations across China, India and the US are all catalysts to the 40% crash. The degree of contribution may vary. As China has effectively banned the transaction and mining of cryptocurrency multiple times over the past year. In addition, India is still in the process of drafting legislation with the aim of banning private cryptocurrencies.
The US has put forward a concrete spending bill. Moreover, on introducing a new set of tax measurements for brokers who engage with cryptocurrencies. It is undeniable that institutions will regulate cryptocurrencies in the future, however, the degree of regulation is still in discussion. The element of fear, uncertainty and doubt will remain and contribute to price fluctuations across the cryptocurrency market.