Bitcoin and cryptocurrencies: why this new historic crash?

Bitcoin and cryptocurrencies: why this new historic crash?

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New hangover for cryptocurrency investors. At 30,000 euros, its lowest level on Tuesday afternoon, the cardinal security, Bitcoin, was trading at a rating most seen since last July. And 57% less than its historical 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, down from $3 trillion at its peak, according to data from the site Coingecko, which lists more than 13,000 cryptocurrencies.

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

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

The ripple effect of fighting inflation

Bitcoin, for example, rose to over €16,000 in December 2017 and then fell to €3,000 in 2019. But the global situation is changing the situation and amplifying the brutality of the fall. The war in Ukraine, the 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 was always more uncorrelated, until 2020, with fluctuations in traditional asset markets. Ironically, it is their adoption by Wall Street and financial institutions that also contributes to these hesitations.

Initiated by the US Central Bank to counter inflation not seen in 30 years, the 0.5% rise in the key rate chilled investors in the stock market and prices stalled. With a domino effect on cryptocurrencies and their banner. “Bitcoin has become a portfolio management instrument that is now correlated with stock assets such as the Nasdaq, the market for technological and riskier assets,” highlights Nathalie Janson, professor-researcher in the Department of Finance at NEOMA Business School. “As it has fed on accommodative monetary policies, the Nasdaq is the index that corrects the most and therefore Bitcoin too.”

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

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