Bitcoin fall: Causes, effects and more

Last week on Thursday, Bitcoin fell below the $57,000 mark, signalling its greatest dip in the last two months.

Since the chaotic and unfortunate events surrounding FTX in 2022, this marks another era when Bitcoin has plummeted. 

And while this unusual volatility is not uncommon in the crypto world, the recent dip in the price of Bitcoin has left many wondering what could be the cause of this recent dip, and what could be the immediate and long-term impacts of this recent fall.

In this article, you will get a firsthand understanding of the core reasons for Bitcoin’s plunge in recent times and also know the impact it may have on the general market 

Bitcoin History 

In 2008, Bitcoin was first presented as a decentralised currency that operated independently of a central bank or other middlemen. The Bitcoin network, a peer-to-peer network where transactions are verified by nodes and documented on a blockchain, allows it to be sent to and from users. There is still some uncertainty around Bitcoin’s creator.

On October 31, 2008, “Satoshi Nakamoto” submitted a paper titled Bitcoin: A Peer-to-Peer Electronic Cash System to a cryptography mailing group. Nakamoto’s identity has never been established, though, and he has never disclosed any personal information. Due to this, a lot of people think this unknown person is a pen name used by one or more of the creators.

When Bitcoin was initially used in 2009, Nakamoto mined the blockchain’s first block after it was made available as open-source software. Known as the Genesis Block, it held the first 50 Bitcoins that were ever generated. From then until 2010, additional early contributors to Bitcoin kept mining the cryptocurrency.

The first documented commercial transaction involving Bitcoin was then carried out by programmer Laszlo Hanyecz, who paid 10,000 Bitcoins for two Papa John’s pizzas. Bitcoin has been traded hundreds of millions of times since then, with the first significant transactions taking place on dark markets. The largest of these was Silk Road, which throughout its operation traded about 10 million Bitcoins. 

What has happened in recent times 

The price of Bitcoin crashed by more than 15% last week, falling by a substantial 7.8% in a single day. The price of Bitcoin has already dropped by about 25% from a peak of almost $72,000 in early June.

Strong selling pressure is visible on the hourly Bitcoin chart, as shown by at least three large red candlesticks. The market has experienced equal pressure from buyers and sellers since last week. There has been uncertainty in the air, causing several people to sell off their Bitcoin. Of course, this was a result of several new events that occurred last week.

5 reasons why Bitcoin is plummeting 

While everyone is in a panic mood about why Bitcoin is falling, one must carefully examine the causes of this fall to know what the effects will be in the long run, and also make an informed choice on whether to hold or sell off. Below are the reasons why the coin has witnessed such a decline recently.

1. Mt. Gox’s bitcoin repayments

The Japanese cryptocurrency exchange Mt. Gox filed for bankruptcy as a result of many successful hacking attempts. They have declared that they will provide their investors, who have been waiting for more than ten years, with a total of 142,000 Bitcoin. This has caused a great deal of worry in the market.

 This sum, or 0.68% of the total Bitcoin supply, is intended to be distributed among the exchange’s creditors. 52,633 BTC have already been moved through the distribution process, indicating that plans are likely in place for a significant payout. Analysts and market watchers are closely observing these moves since the possibility of these creditors selling in large quantities might cause significant market turbulence.

This alone caused Bitcoin holders to sell ahead of time, which heightened market anxiety.

2. German government

The market has also been affected by the German government’s decision to start selling off its Bitcoin holdings, with trades being noted on significant platforms like Kraken, Coinbase, and Bitstamp. 

The government sold off 50,000 BTC over two weeks, leaving 42,274 BTC in its possession. Understandably, market investors are concerned that a persistent sell-off by a large stakeholder, such as the government, may result in downward pressure on prices.

And of course, many are wondering why the sale by a government entity. This alone has made many lose trust in the coin, leading to a massive sell-off 

3. Massive long liquidations

The market for Bitcoin has seen a dramatic rise in the liquidation of long positions.  A record $212 million worth of BTC was sold within 48 hours at one point.

 The price of Bitcoin fell sharply from $68,500 to $61,600 on April 13 due to the liquidation of $261 million worth of long positions in the cryptocurrency. 

Since then, this liquidation has been the largest. Such liquidations often initiate a chain of events that includes forced sell-offs and more price reductions. The market volatility may be exacerbated by investors who may be overextending themselves in a highly leveraged market, as indicated by these liquidations.

4. BTC miner capitulation

Miners faced increased financial strain following the April 20, 2024, Bitcoin halving event, which reduced the mining incentive from 6.25 to 3.125 BTC. Miners now have diminishing returns because the price of Bitcoin was supposed to rise in response to this reward reduction, but the increase never happened. 

Researchers from CryptoQuant recently found that the present miners’ surrender is similar to past market bottoms, like the one that occurred after FTX collapsed. Many miners were compelled to switch off their equipment and sell their cache of Bitcoin due to signs of miner distress, which included a notable 7.7% decline in hash rate and a sharp decline in mining revenue per hash to almost all-time lows.

Effects of bitcoin fall on the general market 

The only effect on the general market is the frenzy of losing out, which will further exacerbate the situation. 

Looking at its effects on stocks and other securities, it is worth knowing that both seem not to have any relationship. The dip in cryptocurrencies has little or nothing to do with stock prices.

But if the uncertainty continues, it will lead to many selling off their Bitcoin, but from experience, in no time, it will always rebound.

Future of bitcoin and cryptocurrency 

When Bitcoin was first made available to the public in 2009, its goal was to completely change how people could access and manage their finances. That revolution, meanwhile, has rarely materialized. Scandals, blunders, and volatile price swings characterized the first turbulent decade of cryptocurrencies, and the second decade that has followed has been no different. The news is still dominated by large-scale fraud, theft, legal disputes, and other issues. These are some speculations on the future of Bitcoin, while it’s hard to predict what will happen in the next ten years.

Moreover,  with the Advent of stablecoins, it will become easier to move money around in the dollar equivalent, most importantly because it’s pegged against the dollar. This also will limit the pressure on the dollar especially for those nations that are dependent on the dollars

On the other hand, to say the government will come to embrace cryptocurrency is something that is not certain in the possible future. For example, the USA over time has always been concerned with the question of losing its hold and dominance on the financial system if that happens.

Conclusion

The fact remains that while Bitcoin and every other cryptocurrency is not backed by any government or any physical assets, they will continue to experience these unusual volatilities.

While the recent downturn is not a new thing, one must know that the frenzy and massive sell-off were founded on mere speculation. And with time Bitcoin will begin to surge again. If there’s any indicator to consider, it was when Bitcoin plummeted to its highest low in the year as a result of FTX’s bankruptcy and the unfortunate events surrounding it. But again, as time went on, it appreciated, almost getting to the $70,000 mark before this recent dip.