The latest jaw-dropping crash in bitcoin may leave newer investors running scared. Will the cryptocurrency make a comeback? Or is this the beginning of the end?
Bitcoin has been as volatile as ever in 2021, profiting from the lows of just over USD $4,500 up to the highs of USD $41,000.
This week, Bitcoin has plummeted over 25 percent, which may scare many newer investors. However, to most of bitcoin’s ‘hodlers’ it’s just another typical wave in the bitcoin experience.
The phrase “hodler of last resort” is used by bitcoin’s most staunch enthusiasts, referring to those whose entire financial life is locked in the currency and who will go down with the ship if the value of bitcoin went to zero.
Despite the recent dip in value, bitcoin’s overall macro picture has solidified this year with institutional customers becoming more comfortable with making large purchases of the cryptocurrency and allocating portions of their balance sheet to the new monetary instrument. This has been exemplified by an almost USD $1 billion purchase by Michael Sailor, CEO of Microstrategy, and other notable insurance funds.
Additionally, bitcoin just completed its fourth halving event in late 2020, which is a quadrennial law of the bitcoin code that sees the reward printed to those who mine bitcoin cut in half, meaning that the new supply of incoming bitcoin decreases by 50 percent. The current block reward post halving is 6.25 BTC per block mined, as opposed to 12.5 BTC in 2018 and 50 BTC per block when bitcoin was first released.
As it stands now, the majority of the new incoming supply is being acquired by funds, privately held companies, and trusts such Grayscale – a bitcoin trust fund that currently manages over 572,644 Bitcoin for its customers.
Other notable holders of bitcoin are Block.one, a smart contract blockchain that used its platform in 2017 in order to crowdfund capital, before moving the USD $4 billion (100K+ bitcoin) that the company had raised into bitcoin.
More broadly, the effect of the COVID-19 pandemic on bitcoin began with a negative price move that saw BTC drop to less than USD $5,200 just as the pandemic started to worsen in April.
The BTC decline occured as countries started to engage in quantitative easing in order to provide financial assistance to their citizens, which caused fears of hidden asset price inflation to grow among investors, prompting many to seek a highly liquid investment with hard money properties.
Recently, BTC has matched with the swings of assets like the S&P500, despite long-standing claims that the correlation between bitcoin and the financial market is close to zero.
Is this the end for bitcoin? At this stage, we don’t expect bitcoin and the technology that it brings to slow down in its growth, let alone be in its final death throws, but it will be interesting to see how the market reacts and unfolds in the coming months.