Bitcoin Just Dropped Below $30,000—What Drove This Latest Decline?

Bitcoin prices have suffered some heavy losses lately, falling to less than $30,000 during a day where risk assets experienced a broad sell-off.

The world’s most prominent digital currency dropped to $29,870.33 around 8 p.m. EST, TradingView data shows.

At this point, the cryptocurrency was trading at its lowest value since July, additional TradingView figures reveal.

By falling to this point, the digital asset was down more than 50% from its all-time high of roughly $69,000 reached late last year.

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

Monetary Tightening

When explaining these latest price movements, several analysts spoke to central bank money tightening, stating that this development was causing investors to flee risk assets.

Central banks around the world have injected trillions of dollars’ worth of stimulus into the global financial system in order to shore up economic conditions during the global pandemic.

Further, they have been maintaining low benchmark interest rates for years, a policy that they have started to reverse. Between rate hikes and asset sales, these financial institutions could have a significant impact on the global asset markets, which many believe have become inflated as a result of unprecedented stimulus.

Charlie Silver, CEO & Chairman of Permission.io, weighed in on this situation.

“With the Fed withdrawing liquidity from the market all risk assets are correlated and selling off,” he stated.

Joe DiPasquale, CEO of cryptocurrency hedge fund manager BitBull Capital, also commented on the matter, providing similar input.

“The monetary policy tightening is causing investors to reduce their exposure to risk assets and BTC’s current correlation to the S&P 500 has led it to also drop today,” he indicated.

Macroeconomic Factors

While the aforementioned market observers focused on the actions of central banks, Sam Rule, Market Analyst for Bitcoin Magazine, cited a wider range of macroeconomic variables as driving bitcoin’s recent price movements.

“Rising rates, a historic pace of monetary policy tightening to combat unprecedented levels of inflation, a strengthening U.S. Dollar versus other global currencies, and a deterioration in global growth outlooks are all macroeconomic forces at play that are driving bitcoin lower,” he stated.

“Bitcoin’s decline is primarily based on these macro factors and the rising risks of a global credit deleveraging that are at play, as opposed to its fundamentals, adoption, and growth potential,” said Rule.

Crypto’s Robust Adoption

Sid Powell, CEO of Maple Finance, a Sydney-based institutional capital marketplace, also spoke to the volatility in digital currencies, comparing these innovative assets to the shares of technology companies and the compelling gains they enjoyed.

“What I think is important to keep in mind here is that, longer term, Bitcoin and the crypto industry more generally are undergoing a process that is quite different from what traditional equities are experiencing right now,” he stated.

“The crypto world is experiencing a rate of adoption globally that is incredibly fast – perhaps at twice the rate at which the internet itself was adopted in the 90s,” Powell noted.

“And if you look at the internet-based companies of the 1990s, they certainly experienced their fair share of volatility. But when observed over a multi-year timeline, their overall rise in price was nothing short of meteoric.”

“And Bitcoin along with crypto are undergoing a similar process, albeit at a more explosive rate.”

Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and sol.