Bitcoin: Why is the largest cryptocurrency crashing?

Thus, it’s very difficult for established regulatory crypto volatility trading frameworks to control them.

Historically Low Volatility Has Been a Precursor to a Price Increase

Please note that the availability of the products and services on the Crypto.com App is subject to jurisdictional limitations. Crypto.com may not offer certain products, features and/or services on the Crypto.com App in certain jurisdictions due to potential or actual regulatory restrictions. In addition, the Crypto.com Exchange and the products described herein are distinct from the Crypto.com Main App, and the availability of products and services on the Crypto.com Exchange is subject to jurisdictional limits. Before accessing the Crypto.com Exchange, please refer to the following link and ensure that you are not in any geo-restricted jurisdictions. The $20,000 level has been a significant psychological and technical level for Bitcoin. In December 2017, Bitcoin reached https://www.xcritical.com/ an all-time high (ATH) of just below $20,000 before experiencing a significant decline.

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Crypto whales can manipulate crypto prices, no matter the cryptocurrency, be that Bitcoin, Ethereum, Dogecoin, or otherwise. Thousands of different cryptocurrencies exist, with new projects and tokens launching every day. However, when competition becomes too intense, it can lead to a decrease in prices by driving down the value of all cryptocurrencies, including Bitcoin and Ethereum. FDAS LLC and FDA LTD do not provide tax, legal, investment, or accounting advice.

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For example, if one person owns the fourth-largest Bitcoin wallet in the world and they decide they want to cash out some of their Bitcoin, this could cause the price of Bitcoin to fluctuate significantly in the short term. After a doubling in price, bitcoin historically has continued this run higher until realized volatility rises to a level where bitcoin price is becoming overheated. This is where the price appreciation phase comes to an end and seller energy looks to find its bottom. In the beginning of March 2020, realized volatility was steadily declining and bitcoin was seemingly on its path to a Price Bottoming phase or a period where volatility and the percentage of addresses in profit are both low.

Misidentifying Resistance and Support Levels

Contrary to popular perception, economic bubbles do not collapse completely in a single day as with a balloon popping, but usually take some months to fully deflate. For instance, the 1929 stock market bubble began to deflate as early as September of that year, had massive selloffs in October, but didn’t fully bottom until February, 1930. Ditto for the 2008 crash, which started in June of that year, but the market didn’t bottom until February, 2009. Very similarly, the dot-com (or, more accurately dot-con) crash which began in the spring of 2000 didn’t bottom until almost a full year later. For that matter, even the infamous Tulip Bulb Bubble in 1637 took some months to fully deflate.

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The increased demand and limited supply of coins (there will only be 21 million Bitcoin) create a rise in price because more people want to purchase them than there are available to sell. As price rises out of the bear market there is a rise in addresses in profit as seller energy reaches its high. Moreover, the number of days below an all-time high peaks just as volatility reaches its low.

What Are Resistance and Support Levels?

• Even worse, some analysts are predicting that Bitcoin might fall all the way to $50,000 before it recovers.
• Unlike in some more traditional markets (think real estate), the barriers to entry in crypto are significantly low.
• Traders enter the market in the direction of the breakout, anticipating a strong move.
• Police are alerted to a crypto currency fraud involving the late Gary Burgess.
• There are many instances of a cryptocurrency’s growth being cut by a government tightening its policies on crypto.

For example, Vox cites a fascinating graphic on “The Musk Effect,” or the phenomenon of how strongly the value of Bitcoin is affected by Elon Musk’s tweets. If it makes you nervous that one person’s Twitter account has a huge influence over the value of your investments, good. Having the value of your investments be at the whim of one person’s fickle opinion sounds like a huge risk to me. Second, it is encouraging to see the response by Jump Crypto stepping in to make the users whole and taking steps to further secure the network. This speaks volumes to the institutional awareness and support, and also shines a light on the collective effort and interests of everyone involved in managing the integrity of these ecosystems. Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions.

Putting It All Together: Can Volatility Give Clues to Future Price Movements?

Always consider the overall trend, news events, and market sentiment when using these levels in trading decisions. — MACD can provide signals of potential trend reversals or continuations, which can be used alongside support and resistance levels. — Breakout trading occurs when the price breaks through a resistance or support level with significant volume. Traders enter the market in the direction of the breakout, anticipating a strong move.

And many ordinary investors – not rich hedge-fund owners or corporations but people like you and me – have less to invest in anything, full stop. It’s fallen 25% in the past five days alone, to its What’s happening to Bitcoin? If this sounds a bit too esoteric or all theory, a relatively recent example of gold’s emergence as an asset class may be helpful. Up until 1971, gold had in various forms been money or at a minimum tied or anchored to the U.S. dollar, such that there was a hard peg of gold to a certain amount of U.S. dollars.

In fact, much-followed investor Cathie Wood of Ark Invest crunched the numbers last year and found at least five periods in Bitcoin’s 15-year history when it collapsed in value by 77% or more. If you take a quick look at Bitcoin’s trading chart over the past five years, you won’t see a single, continuous upward surge in price. Price manipulation is simply the flip-side of the so-called benefit of cryptocurrencies that they are not subject to government regulation. Without regulation, bad actors can manipulate the price of cryptocurrencies and then cash out rich long before the rest of the investors catch on. Investing in something that is speculative is a guaranteed way to introduce volatility in your portfolio. It means the investment’s value isn’t very grounded, which makes its price incredibly sensitive to even slight changes in investors’ expectations or perceptions.

Some economists, for example, say that at best Bitcoin should have a nominal price of $20 per unit. Although some of us called it at the time, in only a month’s retrospect it is crystal clear that investments in crypocurrency had formed a huge bubble. Economist Nouriel Roubini in fact declared it to be the „Mother of all Bubbles“, and the largest recorded bubble in history. Unlike other more traditional assets, Bitcoin has no intrinsic value to underpin it – there’s no bricks and mortar, revenue stream or underlying business, FT markets editor Katie Martin says. The more people sell, the less Bitcoin is worth, because that’s how it works – its value is pegged to its desirability. This has a knock-on effect of more people selling because they can see the value going down…

This trend suggests that bitcoin, while still a volatile asset, is behaving more like other high-risk investments, particularly tech stocks. It may indicate bitcoin’s growing integration into a broader range of investment instruments and its gradual perception by investors as a more mainstream, albeit still risky, asset. Bitcoin’s price fluctuates because it is influenced by supply and demand, investor and user sentiments, government regulations, and media hype. Bitcoin has only been around for a short time—it is still in the price discovery phase. This means that prices will continue to change as investors, users, and governments work through the initial growing pains and concerns until prices stabilize—if a stable point can be reached. As such, it is a reasonably stable commodity, as far as price, demand, and supply go.

Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Digital Assets or its affiliates. Fidelity Digital Assets does not assume any duty to update any of the information. Bitcoin was nearly half as volatile in 2024 at $60,000 when compared with 2021.

While volatility is typically not something that is desired by investors, it is helpful to question whether or not it matters for a core investment thesis. For example, let’s say an investor had the investment objective of allocating a certain percentage of capital to an asset class that preserved value over the long-term (say, at least ten years). The 2022 bear market has caused many people in the cryptocurrency industry to question the viability of cryptocurrencies as a whole. While some crypto supporters believe that markets will eventually stabilize and that cryptocurrencies will continue to gain value over time, others are more pessimistic about the future for cryptocurrencies as a whole. One of the main factors contributing to crypto price swings is speculation and hype.

Understandably, the early years of the cryptocurrency were punctuated by large price swings that would regularly deviate beyond 10% of bitcoin’s daily returns. We can see evidence of less volatility in BTC following its late 2017 rally and subsequent pullback, with the coin only surpassing this 10% deviation barrier once since then. However, the most notable changes occurred when comparing bitcoin to high-volatility tech assets.

Well, that’s great, but it doesn’t mean that the purchase of the hair dryer will profit from the technology, other than by their own enjoyment of it. And speaking of brave, Hollywood A-lister Matt Damon fronted a crypto ad with the slogan „Fortune favours the brave,“ in October 2021. It played out at the Super Bowl and has been viewed 28 million times on Twitter and YouTube.

This is especially noteworthy as equity indices are typically considered the “riskiest” part of modern traditional portfolios due to their historical volatility. Are you looking for Fidelity Crypto®, Fidelity’s crypto offering for individual investors? To view your holdings in one of our investment products, please use the access details provided to you by your administrator. The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. As of the date this article was written, the author does not own cryptocurrency.