A year after its all-time high Bitcoin fell from $68,991 to $20,000, has bitcoin “hit bottom”?

During trading on November 9, 2021, the cryptocurrency reached a value of $68,991, boosted, among other things, by excess liquidity in the markets due to the ultra-expansionary monetary policies of central banks.

Since then, it has accumulated a 68.6% fall which, like that of the equity markets, is due to ” rising inflation and tighter financial conditions through interest rate hikes, including those by the US Federal Reserve (Fed), says eToro cryptocurrency expert Simon Peters.

A few days after hitting $70,000, bitcoin began losing value and starting a downtrend. It was first hit by a new variant of the coronavirus, omicron, which for weeks sparked fears of further lockdown and sent stock markets around the world plummeting.

In January, with the aftermath of Omicron still present and markets beginning to assume that the Fed and other central banks would start raising rates in the face of high inflation, bitcoin lost 17% against the dollar. .

Over the next three months the depreciation continued (between February and April it fluctuated between $35,000 and $48,000) and in May came the collapse of terraUSD, a digital asset that maintained its parity with the dollar through a complex algorithm linked to luna, an unbacked cryptocurrency.

The collapse of terraUSD dragged the entire sector down as the Fed raised interest rates for the second time and the ECB signaled its intention to do the same.

The U.S. central bank raised the cost of money by half a point in early May and accelerated the pace of increases in June, when it moved to raise rates by 75 basis points, the biggest increase for almost 30 years.

Between April 30 and June 30, bitcoin accumulated a 51% drop and three days after the Fed hike in June, it hit its lowest level in a year at $17,599. Since then, it has stabilized around $20,000.

For Peters, this stability (as of Friday afternoon it was trading at $20,750), which held steady after poor third-quarter results from tech companies, could be a turning point and a sign that bitcoin has “ hit rock bottom“.

In recent months, the Fed and also the ECB have continued to raise rates sharply (75 basis points in both cases) and bitcoin has managed to hold at $20,000.

Lukas Konrad-Enzersdorfer, an executive at Bitpanda, said that the fall has gone hand in hand with that of all cryptocurrencies and that the sector is going through a “cryptowinter”, the name given by specialists to periods of contraction of these digital currencies.

Konrad-Enzersdorfer points out that the industry has matured and that cryptocurrencies “ are no longer the Wild West“, which has facilitated increased institutional investment, as well as better consumer protection and regulation, although in Europe the MiCA regulation is still pending approval.

Last September, the Ehtereum cryptocurrency completed its merger and switched to a protocol that improved its energy efficiency, a development Konrad-Enzersdirfer describes as “ one of the most important in recent years in the world of cryptocurrencies“, as it will reduce supply and make cryptocurrencies “more attractive” as a store of value.

Peters notes that the Ethereum merger and bitcoin block reward halving could be “catalysts” for a bull market, but he also adds that the backdrop of high energy prices could add “real pressure.” to the profitability of the currency and become a “challenge” in the future.

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