The issue

The price of Bitcoin rose somewhat this week as investors thought the worst of the cryptocurrency liquidity issue had passed. According to Coin Metrics, Bitcoin had increased 13.63 per cent for the seven-day trading week that began on Sunday, putting it on track for its best week since October. The price reached a high of $22,478.37 at one time, having risen from a low of under $17,000 in June. Let’s see what does affect the Bitcoin price.

According to CoinMetrics, it was trading under 1% better for the day at $21,798.40 at 4:00 p.m. ET. According to Felix Hartmann, general manager of Hartmann Capital, “a lot of the liquidations and forced unwinding are behind us in terms of volume.” Three Arrows declaring bankruptcy was the final nail in the coffin.

Three Arrows, a cryptocurrency-focused investment company, filed for bankruptcy this week after a steep drop in digital currency values disclosed the firm’s liquidity issue. Hartmann noted that market contagion might extend to minor cryptocurrency exchanges or funds, but there are no more extensive, more significant dominoes remaining to fall. If the crypto business could go a month without terrible news or liquidations, he believes the market would “very likely” double.

However, doing so would return Bitcoin’s price to April levels. It is now roughly 70% lower than its record of $68,982.20, set in November.

What Influences Bitcoin’s Price?

Demand and supply

Perceived value and supply and demand determine the value of Bitcoin and other cryptocurrency values, like certain other currencies, commodities, or services inside a nation or economy.

People will acquire Bitcoin if they believe it is worth a certain amount, especially if they think it will rise in value. Just 21 million Bitcoins will ever be generated by design. As long as the market remains constant or grows, the closer Bitcoin comes to its ceiling, the greater its price will be.

Bitcoins are generated at a set pace by mining software or hardware. This rate is divided in half every four years, delaying the creation of coins. Bitcoin’s price will continue to climb as long as it remains popular and supply cannot keep up with demand. However, if demand decreases and popularity declines, more sellers will be sellers than buyers. The price of Bitcoin should therefore fall unless it retains its value for other reasons.

Bitcoin securities are now available.

One more element impelling Bitcoin’s price is supply and demand as Bitcoin evolved into a financial instrument used by investors and financial institutions to hold value and create rewards. As a result, investors have invented and traded derivatives. This affects the price of Bitcoin. Optimism, investment scheme hype, unreasonable luxuriant, and investor anxiety and terror are likely to influence Bitcoin’s price as demand rises and falls in tandem with investor emotion.

Competition in Cryptocurrency

Other cryptocurrencies may hypothetically influence Bitcoin’s price. There are numerous cryptocurrencies, and the number is growing as legislators, institutions, and merchants resolve concerns and accept them as forms of payment and currency. Finally, once users and investors feel that alternative coins will be more precious than Bitcoin, consumption will decline, and prices will follow. Alternatively, if mood and trade shift opposite, demand will climb along with prices.

Crypto Turmoil

The year 2021 was among the best for cryptocurrency investors. While Bitcoin reached an overall high of $69,000 in November 2021, the total Bitcoin market capitalization was around $3 trillion. Analysts and crypto enthusiasts predict that Bitcoin will reach $100,000 by the end of the year. They had no idea what was in store for them.

The crypto market fell well below the $2 trillion mark in January 2022, and it has been all downhill since, except for a minor comeback in April. At the time of posting, the world’s biggest cryptocurrency, Bitcoin, is selling at $20543.10, down 1.46% in just today’s trading.

What brought it here?

The crypto market is down more than 20% from its all-time high, while the stock market has now entered bear territory. The US Federal Reserve has already been raising interest rates to combat the economic trap, one of the most significant increases in 28 years. Inflation has compelled central bankers to decrease market liquidity by hiking interest rates. This is the fundamental cause of the decline in cryptocurrency markets. Many people are shuddering at the prospect of participating in such unpredictable assets.

The reasons behind the crypto meltdown, according to Rohas Nagpal, Chief Blockchain Architect of the Hybrid Finance Blockchain (HYFI), are as follows:

• Most cryptocurrency initiatives are excessively overvalued.
• The darkness brought on by the Russia-Ukraine crisis, as well as COVID lockdowns,
• Governments are becoming more hostile to cryptocurrency.

Many countries throughout the world are attempting to legalize cryptocurrency.

Due to their intimate links with the deep web and other dangerous online activities, cryptocurrency investors in India are concerned that a blanket ban, such as that enforced in China or Egypt, may be implemented. The recent collapse of one of the cryptocurrency market’s main projects, TerraUSD and LunaCoins, has exacerbated the market’s troubles. Recently, the EU announced that a new law had been agreed upon in which crypto asset movements would be traced and identified to combat money laundering, terrorist funding, and other crimes.

Those who capitalized

Three Arrows Capital (3AC), one of the most significant crypto hedge funds, has gone into liquidation due to the crypto catastrophe. The firm struggled to make repayments on a $350 million loan comprised of 15,250 Bitcoin and USDC. On June 16, one of the largest cryptocurrency exchanges, Crypto.com, announced the layoff of 400 employees. Coinbase announced the release of 18 per cent of its overall staff or 1,100 people. Other well-known companies, such as Voyager and BlockFi, have also declared bankruptcy. And over 80,000 Bitcoin traders had their billionaire title removed due to a measly 26,284 addresses containing assets worth more than $1 million.

How should investors manage this?

Even though many crypto traders now recognize that betting large on crypto isn’t the best investing strategy, they should only invest money they’re willing to part with. Putting your money into cryptocurrency is never a good idea.

This is a good moment for investors to evaluate their investment time horizons, risk tolerance, and portfolio construction. Above everything, remember: Learn about the initiatives before investing; grasp the use-cases and potential, and resist peer pressure:- Parth Chaturvedi, CoinSwitch’s Crypto Ecosystem Lead.

Stability is sought.

Gritt Trakulhoon, Titan’s head crypto analyst, saw bitcoin’s weeklong surge as a “much anticipated” short-term relief rally following a significant fall in May once Terra’s stablecoin project collapsed. Nevertheless, as virtual currency prices fell and liquidity tightened, crypto borrowers and other businesses suffered.

Getting an unofficial borrower of last resort, such as Sam Bankman-Fried, to take out some of the troubled crypto lenders also provides solace to investors, according to Trakulhoon. In the week, the FTX CEO stated that he and his organization still had “several billion” on board to support faltering enterprises, potentially further destabilizing the digital asset sector.

According to Trakulhoon, the resistance level for bitcoin is $22,500 to $23,000. He says that if it breaks through that level, it should advance “quite swiftly” to the next level: $28,000.

Trakx economist Ryan Shea highlighted last week’s announcement that Federal Reserve policymakers stated another rate rise of 50 or 75 percentage points is probable at their meeting in July. This, along with growing evidence that the US economy is weakening more sharply than policymakers predicted, is prompting markets to regard the Fed’s hawkish position “with increased scepticism,” he added.

In essence, they are looking beyond the rallies. They are instead focusing on the anticipation of an eventual Fed surrender, which is a favourable situation for crypto prices and risk assets in general, according to Shea.

What can you expect?

Despite the negative attitude and the drop in the net worth of previous Bitcoin billionaires, more than 13,000 new “whole coiners”—wallets containing one or even more Bitcoin units—have indeed been introduced to the market, according to a report by the crypto market intelligence firm Glass node. Another encouraging indicator for Bitcoin supporters is that over the last 20 days, over 2,50,000 accounts have contributed 0.1 Bitcoin to their holdings.

According to a Capgemini 2022 analysis, high net worth individuals (HNWI) have welcomed crypto and other digital assets, including over 71 per cent of the nearly 3,000 capital for investment in digital assets. This implies that cryptocurrency adoption is still robust, with many investors refusing to succumb to current market pressure.

On the other hand, Rohas Nagpal predicts that many crypto exchanges will fail during this period and may never recover. Only initiatives with strong business models and compelling use cases will be able to rise from the ashes of the ‘Great Crypto Crash of 2022.’ Analysts at CoinSwitch think that the TDS consequence after July will set the tone for the remaining year, as exchanges settle at a reduced degree of liquidity and gain a better understanding of the INR premium over offshore markets.

Not to mention their belief in Ethereum’s ‘Merge’ or transfer to a ‘Proof-of-Stake’ agreement architecture, which is expected to take place in September-October and be a significant positive stimulus for the whole ecosystem. Statistically, there wasn’t even a consecutive 4-year holding period in which Bitcoin profits have been negative, and this is something that investors should expect in the long run. Because Bitcoin is the king of all tokens, we may anticipate a better market scenario if Bitcoin profits from better opportunities. The more significant question is whether it will happen soon.

Disclosure

These are purely the opinions of the author based on observations and analysis of financial platforms and a study of public reviews and ratings on how Bitcoin is on track for its best week since Halloween as the crypto crash stabilizes this year. Excerpts from various sources have been used to clarify the facts in this article. A glossary of all the sources used can be found at the end of the article. This article is for educational purposes only and is not financial advice.