A drop in Bitcoin’s price can cause anxiety, especially among beginner investors. However, price volatility is a natural characteristic of the cryptocurrency market.
In this guide, you will learn why Bitcoin loses value, what the consequences of such situations are, and how you should react to make informed decisions. I have prepared a comprehensive overview of topics that will clear up your doubts.
Why does the price of Bitcoin fall?
Although Bitcoin is a decentralized cryptocurrency, it remains influenced by global economic trends. One of the main factors causing price drops is changes in monetary policy, especially in the USA. When the Federal Reserve raises interest rates, risky assets like cryptocurrencies lose their appeal. Investors then prefer safer capital placements, such as bonds. Understanding macroeconomics is crucial because global trends often trigger waves of declines. If you want to make better decisions, follow economic reports and indicators such as the dollar index (DXY) or inflation levels.
Government regulations
Cryptocurrencies operate in an environment of dynamically changing legal regulations. News about trading bans, cryptocurrency taxation, or restrictions imposed by governments can cause panic. For example, China has repeatedly announced bans related to Bitcoin, causing sharp market reactions. Regularly monitor the legal situation in countries key to the cryptocurrency market, such as the United States, China, or the European Union. This knowledge will help you assess whether the price drop is due to temporary turbulence or more serious regulatory changes.
Negative media news
Media have a huge impact on investor behavior. Articles about hacker attacks on cryptocurrency exchanges like Binance or FTX can trigger a wave of selling. Similarly, when prominent investors, such as Elon Musk, express skepticism about Bitcoin, the market reacts with sharp declines. To avoid making decisions based on emotions, use various sources of information and analyze which news has a real impact on Bitcoin’s fundamentals.
What are the main reasons for the decline in Bitcoin’s value?
Investor behavior is largely driven by emotions. The two most important psychological phenomena are:
- FOMO (Fear of Missing Out) – The fear of missing out encourages investors to buy during price increases, fueling speculative bubbles.
- FUD (Fear, Uncertainty, Doubt) – Fear, uncertainty, and doubt lead to sell-offs during declines.
The key to success is learning to ignore these emotions and make decisions based on analysis rather than market sentiment.
Market manipulation by whales
The cryptocurrency market is dominated by so-called whales – investors holding vast amounts of Bitcoin. Their movements can significantly impact the price. For example, if a whale sells a significant amount of Bitcoin, the price drops, triggering a chain reaction among smaller investors. How to recognize this? Use blockchain analysis tools like Glassnode or Whale Alert. Observing the flow of large transactions can provide clues about potential manipulations.
Is a drop in Bitcoin’s price a good time to buy?
Warren Buffett said that the best investment opportunities arise when others are fearful. Drops in Bitcoin’s price are often the result of short-term panic rather than fundamental issues with the technology.
However, before deciding to buy, ask yourself a few questions:
- Do I understand the risks associated with cryptocurrencies?
- Am I prepared for further declines?
- Do I have a long-term investment plan?
Technical analysis
Technical analysis tools can help find the optimal buying moment. For example, the RSI indicator shows whether Bitcoin is “oversold” (RSI below 30) and may soon rebound. Additionally, tracking support and resistance levels on charts will help you assess whether the price has a chance to rebound at a given point.
How does a drop in Bitcoin’s price affect other cryptocurrencies?
Bitcoin is the leader of the cryptocurrency market, and its price influences most other digital assets. When Bitcoin falls, altcoins often lose even more value. Why? This is due to lower liquidity and higher risk associated with less popular projects.
Stablecoins as a “safe haven”
During declines, investors often move their funds to stablecoins like USDT or USDC. If you notice an increase in stablecoin market capitalization, it may be a sign that the market is preparing for a rebound.
Does a drop in Bitcoin mean the end of the cryptocurrency market?
Bitcoin has experienced deep declines multiple times, none of which marked the end of the market. Here are a few examples:
- 2013 – An 80% drop after the collapse of the Mt. Gox exchange.
- 2018 – A correction after the ICO bubble, when Bitcoin lost over 80% of its value.
Each of these crashes was an opportunity to buy before the next growth cycle.
Cryptocurrency fundamentals
It is worth noting the adoption of Bitcoin by financial institutions like BlackRock or MicroStrategy. Their involvement indicates that Bitcoin remains a key asset in the long term.
What to do during a drop in Bitcoin’s price – sell or hold?
HODL is a popular slogan in the cryptocurrency community. It means holding your assets regardless of short-term price fluctuations. If you believe in Bitcoin’s fundamentals, HODL may be the best solution.
Panic selling
Avoid panic selling, as it often leads to realizing losses. Instead, plan your actions in advance. Set levels at which you are willing to sell if the market does not meet your expectations.
How long can a drop in Bitcoin’s price last?
Bitcoin operates in four-year cycles tied to halving (the reduction of block mining rewards). This cycle typically includes:
- A year of growth after halving.
- A year of peak prices.
- A year of declines (bear market).
- A year of accumulation before the next halving.
Understanding this cycle will help you assess how long the current trend may last.
How to analyze the causes of declines in the cryptocurrency market?
Analyzing blockchain data, such as the flow of Bitcoin between exchanges and private wallets, can provide valuable insights. For example, if a lot of Bitcoin is being sent to exchanges, it may indicate an upcoming sell-off.
Are Bitcoin drops normal in the cryptocurrency market?
Bitcoin is known for its volatility. Its value can change by several percent daily. Instead of worrying about it, treat volatility as an opportunity to learn and improve your investment skills.
What historical events have influenced sharp drops in Bitcoin’s price?
Bitcoin, as the most popular cryptocurrency, has experienced many dramatic price drops that caused panic among investors and attracted media attention. Each of these declines had its unique causes, from legal regulations to the collapse of major exchanges and technological issues. Below, I detail the most important events that have impacted the history of Bitcoin’s price declines.
2011: The first major crash – the attack on the Mt. Gox exchange
In June 2011, when Bitcoin was still a novelty, its price skyrocketed to around, only to fall within a few months to just 2. The main reason for this crash was a hacker attack on Mt. Gox, the largest cryptocurrency exchange at the time, handling about 70% of global Bitcoin transactions. Hackers breached user accounts and stole their funds. News of the lack of security caused panic among investors.
Impact on the market
- Loss of trust in cryptocurrency exchanges.
- Investors began to realize the risks associated with the security of storing cryptocurrencies.
- The first discussions about the need for market regulation emerged.
Lesson for investors
This crash reminded everyone of the importance of storing cryptocurrencies in hardware wallets (cold wallets) rather than on exchanges.
2013: The cryptocurrency ban in China
In December 2013, China, already a key market for cryptocurrencies, announced a ban on using Bitcoin as a payment method. Earlier, Bitcoin’s price had risen to a record high of $1,100, but after the Chinese ban, it fell sharply by over 50%.
Impact on the market
- Investors began to fear that similar regulations could be introduced in other countries.
- Reduced activity in the Chinese market significantly impacted global trading volume.
Lesson for investors
Regulatory policies can have a huge impact on the cryptocurrency market. Therefore, it is worth monitoring the political decisions of key countries.
2014: The collapse of the Mt. Gox exchange
In February 2014, Mt. Gox, still the largest cryptocurrency exchange, declared bankruptcy. It turned out that around 850,000 Bitcoins had disappeared from the exchange, representing 6% of the total Bitcoin supply at the time. The value of these Bitcoins was around $450 million.
Impact on the market
- Bitcoin’s price fell by 36% within a few weeks.
- Many investors lost their life savings.
- Trust in cryptocurrencies was severely shaken.
This event highlighted the importance of security audits on exchanges and the need for greater transparency in the cryptocurrency industry.
2017–2018: The ICO bubble and the great correction
In 2017, the cryptocurrency market experienced an unprecedented boom. The price of Bitcoin surged from around $1,000 at the beginning of the year to a record high of $19,783 in December. However, the euphoria quickly turned into panic. In 2018, a sharp correction occurred, during which Bitcoin lost over 80% of its value, dropping to around $3,000.
Reasons for the decline
- The ICO bubble – The rise in popularity of Initial Coin Offerings led to many fraudulent projects that disappeared with investors’ money.
- An overheated market – The price explosion was unsustainable, leading to a natural correction.
- Tightening regulations – Authorities worldwide began regulating ICOs and cryptocurrencies, reducing trust in the market.
Impact on the market
- Both novice investors and experienced traders suffered losses.
- Trading activity decreased, and many cryptocurrency projects collapsed.
Lesson for investors
Pay attention to signs of a speculative bubble. Rapid price increases without solid fundamentals often lead to a crash.
2020: The COVID-19 pandemic and the global crisis
In March 2020, at the beginning of the COVID-19 pandemic, global financial markets suffered massive losses. Bitcoin was not immune to these events either. Within a few days, its price dropped from around $10,000 to below $4,000.
Reasons for the decline
- Panic among investors worldwide.
- Mass sell-offs of assets to secure financial liquidity.
- Uncertainty about the future of the global economy.
Impact on the market
- After the initial drop, Bitcoin quickly rebounded, reaching a new record high of over $20,000 in December 2020.
- The pandemic highlighted the advantages of Bitcoin as a decentralized asset and an alternative to traditional financial systems.
Global crises can lead to short-term declines but may strengthen Bitcoin’s appeal as an inflation-resistant asset in the long term.
2021: Elon Musk and energy concerns
In May 2021, Elon Musk, CEO of Tesla, announced on Twitter that his company would no longer accept Bitcoin as a form of payment due to concerns about the environmental impact of cryptocurrency mining. Additionally, China began cracking down on cryptocurrency mining, banning it within its territory.
Impact on the market
- The price of Bitcoin dropped from around $60,000 to $30,000 within a few weeks.
- Many companies began analyzing the environmental impact of cryptocurrencies.
The importance of sustainable development is growing. It is worth following cryptocurrency projects aiming for carbon neutrality.
2022: The collapse of LUNA/UST and FTX
2022 was one of the most dramatic years in cryptocurrency history. First, the Terra (LUNA/UST) ecosystem collapsed, causing losses in the billions. Then, in November, FTX, one of the largest cryptocurrency exchanges, declared bankruptcy, causing panic and a drop in Bitcoin’s price below $16,000.
Reasons for the decline
- Poor asset management by FTX and related companies.
- Lack of regulations that could prevent such situations.
- Loss of trust in major market players.
Impact on the market
- Many investors withdrew their funds from exchanges to private wallets.
- Interest in cryptocurrency market regulations increased.
Trust in exchanges should be limited. Store your funds in private wallets and diversify your investments.
Summary
Regardless of whether the cryptocurrency market is in a bull or bear phase, Bitcoin Quark is your trusted partner in buying and selling Bitcoin. During uptrends, we enable quick market entry so you can benefit from potential gains, and during downtrends, we offer secure tools to protect your investments or make purchases at attractive prices. Thanks to simplicity, security, and transparency, our services allow you to make informed decisions and act in any market situation.
