After an extensive bear market, the crypto community expected prices to settle as Bitcoin reached $20,000. However, many reasons came into play and caused Bitcoin prices to breach this strong psychological price lower, reaching a current price of around $18,500. Why Bitcoin fell below 20000 dollars? In this article, we give you a brief refresher on what happened since the beginning of the crash, leading to Bitcoin prices falling below $20,000.
Bitcoin started its Downtrend in November 2021
Overbought Cryptos
Bitcoin prices reached their all-time high back in November 2021. The entire cryptocurrency market was on its bullish trend, where many tokens also reached their all-time high prices. However, nothing goes up without going back down. Crypto prices became highly inflated and needed an adjustment.
Those initial adjustments are due to short-term profit-taking traders. Also, since some crypto projects fail, panic selling tends to also occur at this stage. But the selling pressure became apparent, and the market turned from a bull to a bear market
Negative Mainstream Media sentiment
The mainstream media did also play a major role in prepping for the crash. Every now and then, we used to see an article about a “famous investor” talking negatively about cryptocurrencies. Warren Buffet was the latest to spur the market. Additionally, Elon Musk seems to have abandoned his crypto jokes and toned down on pumping the crypto narrative. His tweets regarding cryptos dropped by more than 80% compared to back in 2021.
Why Bitcoin Fell Below $20,000?
#1 Fed rate increase
The world is witnessing severe inflation. This is when the price of goods and services becomes much more expensive in a short period of time. This happened because when COVID-19 started, the US government and other governments around the world started printing money and distributing them to its citizens in a relief plan attempt. To combat this today, the US Federal Reserve higher the interest rate, making it harder for businesses and people to receive loans, hence lowering the liquidity in the market.
#2 Tech Stocks on the Decline
Many people were waiting for a market crash back in 2019. However, the government printing money helped delay this crash. Today, as the world recovers from the pandemic, we are entering a bear market. Tech stocks in particular got affected. Cryptos have been highly correlated with tech stocks, being a technology themselves.
#3 Crypto Firms Layoffs
With the falling prices of cryptocurrencies, many crypto companies felt the heat such as Coinbase and Gemini. Most of them already owned cryptos and had them on their balance sheet. When cryptos go down, their assets go down, hence their valuations go down in turn. Because of this, most of them started with the obvious move: layoffs. This created panic and fear across the crypto community. When you see legitimate companies drowning, you’d feel the heat as well and reconsider your crypto investments.
#4 Microstrategy reaching its Margin Call
Microstrategy was among the major companies that decided to own Bitcoins and added them to its balance sheet. However, they used leverage in order to greatly benefit from cryptos’ rising prices back in 2021. Leverage is like a double-edged sword. When crypto prices fall down, the effect becomes much worse. Now that Bitcoin prices are well below $20,000 (their average purhcase price), the company risks getting a margin call.
The CEO Michael Saylor confirmed that the company is well capitalized and can withstand falling prices, but till when? Since Microstrategy’s risk grew, other crypto investors became wary.
#5 Crypto Companies Halting Withdrawals
When an exchange halts withdrawals, this creates very bad sentiment in the crypto market. Imagine not being able to withdraw your cryptos or liquidate them anymore…Many companies did this in many countries, including Celsius and even Binance.
As an example, Celsius’s $12 billion in crypto assets under administration has effectively been locked up. This raised questions about the platform’s trustworthiness. The announcement sent shockwaves across the crypto community, recalling what happened in May when the Terra project lost $60 billion in value, dragging the rest of the sector down with it.
