March 4, 2021

Cryptheory

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Bitcoin price: Why the cryptocurrency dipped dramatically, and what the value is today

2 min read

Bitcoin’s price has crashed by over $10,000 (£7,120), taking it back below $50,000 (£36,000) after weeks of strong gains.

The cryptocurrency’s value had been on the rise all year, party due to a big investment from Tesla and increased interest off the back of the GameStop stock frenzy.

Bitcoin hit an all-time high on Sunday, reaching $58,000, but was down near $45,000 at midday on Tuesday.

Its value has now started to recover, and is now around $48,000.

Why has Bitcoin’s price crashed?

Nikolaos Panigirtzoglou, a strategist at JP Morgan, has theorised the fall could be down to market liquidity.

Market liquidity is the ability for an individual or business to buy or sell a significant amount of an asset very quickly, making real-time impacts to its value.

Mr Panigirtzoglou said on Friday: “Market liquidity is currently much lower for Bitcoin than in gold or the S&P 500, which implies that even small flows can have a large price impact.”

Elon Musk may have played a part in Bitcoin’s price drop (Photo: Reuters)

Tesla CEO Elon Musk may have also played a part in Bitcoin’s dip – despite being one of its most vocal supporters.

On Sunday he posted that Bitcoin’s price did “seem high” – just two weeks after his company added $1.5 bn in Bitcoin to its balance sheet, which caused the currency to leap 50 per cent in value.

This would not be the first time Musk has moved markets with his social media posts. His support for the r/WallStreetBets Reddit community helped power the GameStop surge, and he has also sent Bitcoin and fellow cryptocurrency Dogecoin soaring with off-hand Twitter remarks.

What will happen next?

The volatile nature of cryptocurrencies makes it almost impossible to know what will happen next.

Bitcoin’s value rose by over $3,000 in two hours after its fall, but is still around $9,000 off Sunday’s high.

Eric Rosengren, the president of the Federal Reserve Bank of Boston, told the New York Times last week that he doubted Bitcoin could sustain its recent success.

“I would suspect, down the road, that a number of central banks will have digital currency,” he said.

“When there is a digital currency available, other than the underground economy, it’s not clear why people would use Bitcoin.”

However, its supporters are mot concerned by the crash.

“Price movement may galvanise Bitcoin’s many critics, including those who recently dismissed the leading cryptocurrency as an economic sideshow,” Paolo Ardoino, chief technology officer at cryptocurrency exchange Bitfinex told Forbes.

“Such criticism misses the point and the profound impact it is starting to have. For many of the battle-tested exchanges that have weathered the market fluctuations, volatility isn’t new and is to be expected in such a young market.”

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