In 2021, the value of Bitcoin hit an all-time high of around $69,000. However, it has since started to decline. At present, it has a market cap of around $39,000. Bitcoin is volatile, with a history of up and down cycles. This raises questions about its potential crash.
Over the course of the year, Bitcoin experienced a number of ups and downs. It wasn’t the only cryptocurrency that had a rough end to the year. The decline in global stocks was caused by various factors. One of these is the uncertainty surrounding a new Covid variant and the higher interest rates that it will cause businesses to pay.
In December, the value of various digital assets such as Bitcoin and other cryptocurrencies started to decline. In January, Bitcoin’s price hit around $40,000. It then continued to fall throughout the rest of the year.
Fears about the US raising interest rates and China’s continued efforts to ban cryptocurrencies are also contributing to the decline in the market. Bitcoin’s price does not take into account the performance of a company, but rather, it is determined by how people think it will perform. This is, in other words, the reason why the price movements are based on speculation.
Due to the nature of the speculation, Bitcoin can experience violent price swings. There have been several instances where the price has changed dramatically. Tesla CEO Elon Musk announced in May that the company would no longer accept payments made using cryptocurrencies due to the environment.
In June, China banned the trading and mining of Bitcoin. In the following month, UK banks stopped making payments to cryptocurrency exchanges. The FBI seized millions of dollars in Bitcoin from criminals. The UK’s financial watchdog also blacklisted one of the biggest cryptocurrency exchanges, including Binance.
In August, the International Monetary Fund warned about the potential effects of cryptocurrencies on the global economy. It noted that their widespread use could threaten the stability of the financial system. Also in August, a group of hackers known as the Poly Network stole $600 million from a financial firm. They then returned almost a third of their stolen money four days later.
In March 2021, Morgan Stanley became the first major US bank to allow its wealthy clients to access Bitcoin funds. It restricted the access to the digital asset to no more than 2.5% of an investor’s total net worth.
Musk said in June that Tesla would eventually start accepting payments made using Bitcoin again once the company’s energy usage is more than 50% from renewable sources. Amazon sparked speculation that it would eventually accept Bitcoin as a payment method by posting a job ad for a product lead.
Other stories about the potential impact of Bitcoin on the financial system were more mixed. For instance, the Federal Reserve is considering launching its own digital currency.
In July, US President Joe Biden issued an Executive Order aimed at coordinating the federal government’s actions related to the regulation of digital assets. Although many people think regulation is a bad idea, some believe this new order could help develop the proper protections for consumers.
The rapid rise and sudden surge of the prices of cryptocurrencies can make them more prone to a crash. This usually happens when the market hits a new high. It took Bitcoin more than a decade to reach $20,000. However, it only took three weeks for its price to double.
In 2013, the year when Bitcoin first hit its high, the price of the digital currency went from $13.40 to over $1,000. Fast forward to 2021 and the price had soared by more than 700% in 12 months. Where it is heading next is equally unpredictable.