The price of Bitcoin is in a significant decline, reaching less than $19K thousand dollars

Why did bitcoin drop today?

Why did bitcoin drop today? Today we will talk about the topic that preoccupies the minds of investment owners around the world, which is the noticeable decline in the price of Bitcoin (BTC), which reached 19 thousand dollars. This topic will benefit a lot who own a lot of their bitcoin and the owners of trading in the currency.

The price of Bitcoin is in a significant decline

What happened to Bitcoin today

For the original cryptocurrency, it's a respectable decreasing trend. When U.S. markets opened this morning, Bitcoin (BTC) had already fallen below the psychological $20,000 milestone from yesterday.

The sell-off followed the Institute for Supply Management's strong services report. Investors' concerns that the Federal Reserve will raise interest rates at its upcoming meeting on September 20–21 were rekindled by the better-than-expected data.

The FedWatch tool from CME indicates that there is an 80% possibility of a 75 basis point (bps) rise and a 20% chance of a 50 bps increase.

Bitcoin price prediction

The U.S. dollar would gain strength if interest rates rose. But growth assets like IT stocks rapidly fell as a result of worries about a higher dollar. In Tuesday's trade, the Nasdaq lost more than 1% of its value.

Other risky assets like cryptocurrencies rapidly followed suit the next morning.

BTC has fallen more than 5% over the previous five days as of this writing. The original cryptocurrency is currently trading at its lowest level since June 18 and is once more vying with previous lows of about $17,000.

The top altcoin, Ethereum, has decreased by more than 2% during the last five days. Ethereum's merging began on Tuesday morning as the blockchain executed its Bellatrix upgrade, making it even more volatile recently than Bitcoin.

The strain has also been felt by other cryptos. A long cry from its $3 trillion value in November 2021, the total market capitalization of cryptocurrencies is currently less than $1 trillion once more.

Will Bitcoin crash to zero

Before running into some difficulties last month, the original cryptocurrency was selling at around $25,000 on August 14. This was a significant increase from its pricing in June when Bitcoin hit its bottom.

For those who need a reminder, on June 18, Bitcoin reached its 52-week low of $17,708. The decline came as a result of reports that some cryptocurrency companies were experiencing a shortage of liquidity.

Due to "extreme market conditions," cryptocurrency lender Celsius halted customer withdrawals a few days before to Bitcoin's low. Since June 13, Celsius has frozen all customer withdrawals and transactions. After a month of upheaval, the cryptocurrency company filed for chapter 11 bankruptcy protection on July 13.

Around June 16–17, it was revealed that Three Arrows Capital (3AC), a Singapore-based cryptocurrency hedge fund, was bankrupt, adding to the list of insolvent crypto firms.

On June 27, Three Arrows Capital (3AC) missed a payment on a loan from Voyager Digital. The debt, which was made up of about 15,250 BTC and USD Coin (USDC), was valued at nearly $350 million in crypto assets. For those who require a little background, TerraUSD/LUNA, the stablecoin that saw the biggest crash in May, was heavily backed by 3AC.

For 3AC, a string of liquidations from cryptocurrency lenders like BlockFi, Voyager, and Celsius bode doom and led to the company's insolvency.

Currently trading far below their record highs of almost $69,000 in November 2021, bitcoin prices have fallen by more than 60% year to date. Additionally, according to experts, BTC is no longer seen as an inflation hedge because it trades in lockstep with stocks, which are also experiencing a decline.

Mid-June saw a significant drop in the value of Bitcoin, which was largely attributed to Celsius, a decentralized finance (DeFi) platform and one of the biggest crypto lenders.

By claiming that users could earn an annual percentage yield (APY) of up to 18% by depositing their crypto assets on the company's platform, Celsius, which had up to 1.7 million subscribers, developed a cult following in the cryptocurrency community.

In a manner similar to traditional bank lending, the company accepts cryptocurrency deposits and makes loans to other investors and financial institutions. From the money Celsius makes from cryptocurrency loans, users receive yield.

As of May 17, the corporation managed $11.8 billion worth of assets, down from more than $26 billion in October of the previous year. The business ceased publishing its entire AUM on its website in June.

Why crypto market is down today 2022

By the end of 2021, Bitcoin had increased by about 70%. That's an incredible return for any asset class, much less one with no real value or the full support of a national economy.

Nevertheless, after rising by more than 300% in the lockdown-ravaged year of 2020, a 70% yearly return indicates a comedown for Bitcoin.

According to Alex Reffett, co-founder of wealth management company East Paces Group, investors are adopting "a general flight to safety across the board in most asset classes" in 2022. Investors as a whole have expressed a greater interest in value-based investments compared to speculative stocks and other types of "store of value" investments.

The Fed is battling an unprecedented rise in inflation that is comparable to anything observed in the previous 40 years. Analysts anticipate that the central bank will continue hiking rates through the rest of the year and into 2023, though it is unknown how many more hikes will be made. According to some projections, the fed funds rate could reach 3.5% or higher by year's end.

The desire for higher growth firms, like tech equities, and speculative risk assets, like cryptocurrencies and Bitcoin, declines when the Fed rises interest rates.

It's difficult to predict how much demand for cryptocurrencies will endure if the liquidity runs out.

According to Interactive Brokers' senior strategist Steve Sosnick, "We have no historical precedence for how Bitcoin and other cryptocurrencies might function if we enter a sustained period where central banks deliberately drain liquidity." Investors often find such to be challenging times, and riskier assets frequently underperform safer ones.

Bitcoin Is a Risk Asset

Investments that encounter a high degree of volatility in the regular course of the market are referred to as risk assets.

Risk assets include stocks, commodities, high-yield bonds, currencies, and Bitcoin because you may anticipate regular price fluctuations in practically every market environment.

Bitcoin was once thought of as a store of value that was somewhat resistant to changes in the value of risky assets. That's not the situation anymore. Today's risk assets, such as Bitcoin and the larger crypto market, are impacted by economic phenomena like inflation, stock markets, and Fed monetary policy.

According to Richard Smith, editor of the Risk Rituals Newsletter, "the reason why this specific decrease is occurring this year is that market narratives have changed from risk-on to risk-off." As the Fed and other central banks begin to unwind excessive support, liquidity is drying up.

The concept of bear markets is nothing new to seasoned Bitcoin traders. BTC's price dropped by more than 80% from 2017 to 2018. But that was before significant businesses invested billions to enter the cryptocurrency market, like Fidelity and PayPal.

New cryptocurrency owners should be aware of the courage needed to continue with Bitcoin over time.