Bitcoin (BTC) is considered to have one of the most testing periods in its history. Bitcoin is the most valuable cryptocurrency in the world. However, it has lost a significant part of its value due to several crises.
A few years ago it was valued at around $69,000 and since then, BTC has lost around 75% of that value, which is now able to represent its all-time high. But in hindsight, 2022 has turned out to be a disappointing year for BTC and the crypto space at large.
However, since the crypto boom during the year 2021, the industry is tipped by most to enjoy a prosperous year. In addition, notable predictions include a price of around $100,000 for BTC to be seen.
Nevertheless, it can be seen that the sharp drop in BTC is not due to a direct issue. Instead, there have emerged several macro and micro factors have influenced it further. If you want to know more about bitcoin trading, then you may visit https://chain-reactions.io/.
Events that caused the BTC price to drop
Here we will take a look at the notable events that have led to the decline of BTC price. One of the first significant factors was the Russian invasion of Ukraine. Before the Russian action, BTC started the year on a near-value note at around $47,000.
In a three-month-long struggle, BTC suffered a drop to around $28,000. In addition, across Europe, it suffered a sharp decline due to rising inflation due to rising energy prices. On the other hand, if we talk about the collapse of Terra’s LUNA and UST, this possibility has also strongly affected the firms in the crypto world and BTC.
Several businesses completely blocked the withdrawal of funds from users who had invested in LUNA. The subsequent collapse of LUNA and its algorithmic stablecoin UST resulted in the loss of approximately $53 billion in user funds.
Along with the disasters mentioned, inflation in many other economies around the world continues to be a focus of attention.
How does the Fed Deal with Inflation?
As inflation continues its onslaught, so does the U.S. The Federal Reserve Board also launched an attack to fight it, along with other top financial institutions. Last year alone, on four occasions, the Fed raised its interest rate to discourage excessive spending by Businesses and individuals.
In addition, the Fed’s position was echoed by Fed Chair Jerome Powell to keep raising interest rates until inflation falls to around 2%. Logically, the greater the increase in the interest rate, the greater the likelihood of a decline in inflation.
Currently, the rate of inflation in the US is found to be well above the Fed’s target. Also, in a fresh move against prevailing inflation, the Federal Reserve has raised its rates by almost 50 bps, resulting in a new high since 2007.
What is the Impact of Rising Fed Rates on BTC and its Investor Reactions
If we talk about rising interest rates here, it can directly affect the price stability of BTC. However, with interest rates continuing to rise, access to credit also becomes more expensive.
For individuals, this may appear with a reluctant outlook, as they receive minimal returns when they take loans to buy property. Hence, also reducing the exploitation of individuals while purchasing the property.
On the other hand, for BTC, in general, the Crypto currency trades as a risk-on asset, so there is the possibility that higher rates could be more destructive to its price. On the other hand, if we talk about the interest rate, then it can further reduce the demand for BTC, due to which its value will fall further.
Why Should You Care
Although bitcoin has faced several hurdles in the past year, it has attracted more retail investors in record numbers. Wherein it has offered even better performance than a stable asset like gold even under certain circumstances.
While BTC has not been a good hedge against inflation in the short term, it changes the story completely if the focus is on long-term performance.