Why Bitcoin and Cryptocurrencies Are Taking a Historic Plunge Again

New hangover for cryptocurrency investors. At 30,000 euros, its lowest level on Tuesday afternoon, the cardinal value, Bitcoin, was trading at a rating more seen since last July. And down 57% from its historic record reached in November 2021 with nearly 65,000 euros. Other cryptocurrencies are no better: the total market is now valued at just over $1.5 trillion, compared to $3 trillion at its highest, according to data from the Coingecko site, which lists more than 13,000 cryptocurrencies.

It floats like deja vu. In 2021, Bitcoin temporarily fell below $30,000 twice, in June and July, before rising again to hit its all-time high a few months later, in November. A phenomenon of volatility not so exceptional because linked to its intrinsic value: a limited number of currencies in circulation, the famous 21 million.

“There have already been historic plunges like in 2018 with -83% and phases of volatility exist with each Bitcoin cycle”, puts Romain Saguy, commercial director of Coinhouse, an exchange platform, into perspective. “There is each time a bubble effect followed by a ‘bear market’, that is to say a continuous downward trend since the November peak,” he explains.

The domino effect of the fight against inflation

Bitcoin, for example, rose to more than 16,000 euros in December 2017 and then fell to 3,000 euros in 2019. But the global situation is changing the situation and amplifies the brutality of the fall. War in Ukraine, successive confinements in China or the tightening of monetary policy in the United States… The cryptocurrency market had never experienced such a wave of tremors with geopolitical and economic crises of global proportions. Bitcoin had all the more always been decorrelated – until 2020 – to fluctuations in traditional asset markets. Ironically, it is its adoption by Wall Street and financial institutions that also contributes to these vacillations.

Initiated by the American Central Bank to counter an inflation not seen in 30 years, the 0.5% increase in the key rate cooled investors on the stock market and prices stalled. With a ripple effect on cryptocurrencies and its banner. “Bitcoin has become a portfolio management instrument which is now correlated with stock market assets such as the Nasdaq, the market for technological assets and the riskiest”, points out Nathalie Janson, teacher-researcher in the Finance department at NEOMA Business School. “As it has been fed by the accommodative monetary policies, the Nasdaq is the index that corrects the most and therefore Bitcoin too”.

Second digital asset by its capitalization, the Ethereum also takes the hit but rebounds a little better than the other virtual currencies. “It is perceived as a healthy economic mechanism with real utility and the certainty that it will be there in 5 to 10 years” specifies Romain Saguy of Coinhouse. “The other cryptos in the world’s top 10 must be considered as start-ups with uncertainties about their ability to survive,” warns the expert. “But anyone who has bought Bitcoin and kept it for three years has made a gain” he tries to reassure in these uncertain but not unknown times.

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