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Bitcoin momentum erased as the currency falls to £24,030


The price of Bitcoin fell to a low of £24,030 ($34,000) on Wednesday for the first time in 3 months.


The brief crash of the cryptocurrency was a result of an announcement from the Chinese government stated that the nation plans on cracking down on Bitcoin.


The crash has also come at the time of Tesla’s announcement by Elon Musk which stated that the electric car manufacturer will no longer be accepting the cryptocurrency.


The combination of these two announcements caused crypto investors to panic as the possibility of an entire nation being excluded from using Bitcoin will undoubtedly reduce demand for the currency.


Additionally, it can be argued that Elon is one of the most influential factors when it comes to the price of currencies, the billionaire-entrepreneur has released many statements on Twitter regarding another currency known as Dogecoin, which, ever since Elon’s support, has grown quite rapidly in popularity.


So, due to the fact that Tesla, a holder of Bitcoin announced that they will no longer be holding the currency, confidence had understandably dropped in the market yesterday as investors sold their holdings to ensure that their assets had been liquidated and safely in their pockets.


This surge of panic selling caused market activity to rise. Investors sold their holdings, which increased supply and little bought a currency that was spiralling out of control, thus reducing demand.


And this of course creates the perfect recipe for falling prices, supply increases, demand falls, prices go down, high-school economics.


However, Tesla’s announcement also stated that the firm will not be selling any of its Bitcoins, this came as a Tweet from Elon during the crash which used emojis to illustrate that Tesla had “diamond hands,” a term used by investors to illustrate that they are not selling.


This tweet helped stabilise the price of Bitcoin as investors were now told that a large holder of the currency, Tesla, is keeping their position and are still confident in the currency.


Consequently, now that the price is seeming to stabilise, many investors will likely see a golden opportunity to make a profit.


The one rule in buying stock is to buy low and sell high, so, now that the price of Bitcoin has fallen, investors may take this philosophy to heart and may start buying.


If this occurs, the large increase in demand will likely be enough to recoup some of the Cryptocurrencies losses, however, it is uncertain if the bounceback will be enough to retain Bitcoins progress since the start of this year which was wiped out on Wednesday.


Also, with China interfering with the cryptocurrency market, other nations and governments may soon follow as these currencies act as a good method to conduct black-market business.


The environmental cost of mining Bitcoins is also very large as rooms filled with supercomputers are required to make a living off the operation.


Additionally, Cryptocurrencies are very susceptible to pump and dump schemes, which, if we’re used on traditional stocks, would perhaps be investigated as the practice may come under what is known as market manipulation.


Therefore, in future, big brother may choose to regulate the buying and selling of cryptocurrencies to ensure that there is no malpractice within the market.


This combined with other government intervention, such as the introduction of digital currencies, e.g. the CBDC of the Bank of England, may be the final nail in the coffin of cryptocurrencies as these digital currencies may be a better alternative to Bitcoin as the supply of these centralised currencies can be controlled by the central bank, thus making them more stable as they are more intertwined with economic indicators.


Hence, despite Bitcoin potentially bouncing back in the near future, the long-term outcome may be much direr, as government intervention and alternatives will cause cryptocurrencies such as Bitcoin to be much more unattractive, thus causing demand to fizzle out and the prices to fall.

 

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Written by Hubert Kucharski

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