The Bitcoin price crashed this week. At some point, the cryptocurrency fell to $29,965, according to data provided by Coinbase. BTC has bounced back and is now trading at around $38,000. Action in the rest of the cryptocurrency universe was worse, with many altcoins falling by more than 40%.
Why BTC prices nosedived
There are several reasons why the BTC prices crashed. First, there are fears that China will start tightening regulations. Furthermore, Bitcoin and other cryptocurrencies advocate for privacy, something that Chinese officials hate. In a note, analysts at Bernstein said:
“We believe government crackdown on cryptocurrencies can trigger another ‘crypto winter’ and reduced trading activity. Harsher crackdown on crypto is possible in many developing countries which may view crypto as a threat to their fiat currencies and monetary system.”
Second, there are fears of high interest rates in the United States. Indeed, in the United States, minutes by the Federal Reserve showed that officials started talking about tightening in the April meeting. This is notable since, at the time, the US had not released its strong consumer inflation data. Therefore, it is a matter of when, not if, when the bank will start tightening.
Like I wrote on Sunday, tightening by the Fed is not entirely a negative thing for Bitcoin prices in the long-term. In most cases, investors tend to overreact and then adapt to the new normal. Therefore, while high interest rates are concerns in the near term, these fears will abate in the longer term.
Third, Bitcoin prices fell because of the US tax season. This week was the final week for Americans to submit their tax returns. Therefore, it was an opportune time for most of them to sell their coins to address their capital gains. It is worth noting that the crypto sell-off coincided with a sharp decline of other assets like commodities and stocks.
Further, BTC prices declined because of concerns about Tether reserves and the ongoing shift towards clean energy.
Bitcoin prices can still bounce back
While it’s too early to tell, history suggests that BTC prices can still recover. Hear me out. First, as shown below, the Bitcoin Fear and Index has dropped to the extreme fear zone. This is often seen as a positive sign since many investors will rush to buy the fear.
Second, fundamentally, nothing much has changed about Bitcoin. It is still a rare currency that is still in its infancy. As such, this volatility is expected. Indeed, the currency has had some major corrections in the past, as shown below. This is a positive factor for BTC prices. Furthermore, I suspect that many institutional investors will rush to buy the coin at a 50% discount.
Institutions are not selling
Finally, large Bitcoin investors are not selling. In a tweet on Wednesday, Tesla insisted that it had not sold any coins. It is also not considering selling, according to Elon Musk. MicroStrategy, too, has indicated that it is not considering exiting its trades. Indeed, on-chain data show that many large holders have not sold. Instead, the sell-off was mostly led by speculators and individual traders.
Bitcoin: Buy or Sell?
Like I wrote yesterday, Bitcoin Hodlers should cheer the ongoing sell-off of the currency. This is because the decline has pushed away many Bitcoin speculators who also bought garbage like Dogecoin and Shiba Inu. While it’s still too early to tell, there is a possibility that the currency will stage a recovery.