Earlier today, bitcoin fell to $42,200 in its biggest price drop since May 15 when it fell to near $30,000. The coin recovered to $47,000 and has since been ranging in that region on the daily chart. The crash wiped off the gains that BTC made in October and liquidated about $1.3 billion across all exchanges. The general market lost $500 billion as the entire market cap fell 20%.
While many sought to understand the reason for the crash, analysts have managed to pinpoint the highest culprits. A number of factors contributed to the crash. Although the market is “blood-red” right now, it has presented a buying opportunity for bullish investors who want to position for bigger profits. Institutional investors are reportedly making whale purchases.
Some of the factors identified are the new coronavirus variant, omicron, discovered in South Africa, high costs of funding crypto on exchanges, and also overleveraging short and long positions across many coins. The funding rate index entered a negative reading late Friday night. Analysts say it is an indication of increased difficulty in purchasing bitcoin on exchanges.
Regulatory Concerns Too
Concerns for possible crypto regulations in the US and India also contributed to the massive bearish movement. In the last two months, reports about government regulation in India have resulted in some panic in the market. In the US, the crypto community is especially concerned about possible bitcoin mining regulations owing to increased stress on the national grid.
In Kazakhstan, the story is similar. Kazakhstan is one of the countries that received an influx of bitcoin miners following China’s crackdown that has been on for months now. Kazakhstan is experiencing an energy crisis that has resulted in energy supply rotation. Although bitcoin miners are now considering green energy, regulatory concerns still impact the market.
In the US, several crypto CEOs have been invited to a hearing with federal regulators. The hearing will consider regulations for cryptocurrency.
Several commentators have also implicated the open long and short positions that were over-leveraged. Many traders leveraged their trades in the hopes of making massive profits but the price crash resulted in a commensurate loss that has seen traders lose more than they risked.
Can Bitcoin Lead a Recovery?
Bitcoin has lived up to its title as the leader of the crypto market. The coin continues to impact the price movements of other coins. This is one reason why analysts think that bitcoin can lead the market back to recovery and then gain. Bitcoin’s recovery is almost certain as shown by previous years’ data.
For the last five years, bitcoin has always experienced some drop in December. This will then be followed by massive profits in the new year. Will 2022 be different? The stats say no. Bullish investors are already buying more BTC to position for massive profits when the coin gains. One investor, in particular, stands out: El Salvador.
The South American country has now purchased 150 BTC to increase its bitcoin holdings to over 1000.