If you bought any bitcoin in January, you’ve seen virtually zero appreciation in your investment. The price on Tuesday dipped below $30,000 to reach the same value it started the year at, or $29,333.
That’s a big drop from bitcoin’s high of $63,000 back in April. But such wild fluctuations are not unusual for the cryptocurrency, which has been defined for years by its volatility. A pop in value brings in new individuals hoping to make it big, and then an equally large crash happens for reasons that are tough to pinpoint. Bitcoin is a very speculative asset and trades mostly on excitement and momentum.
Turbulence — Sometimes it’s tweets from Elon Musk that seem to send the price moving. The past year also saw a boom in NFTs, or digital collectibles that use cryptocurrency technology. And some companies (including Musk’s Tesla, briefly) began accepting bitcoin for payment. All of these factors, and others, could have played into its ascent to $60,000.
In the case of this crash, the widely accepted belief is that China’s crackdown on bitcoin miners is to blame (but again, there could be other explanations).
Miners run powerful computers that do the hard work required to create new coins and verify transactions. Because of cheap energy there, it’s estimated that 70 percent of the hashrate for mining bitcoin — the processing power for verifying transactions — is generated in China. So the government’s moves to shut down mines threatens to destabilize the network by slowing the time it takes to buy and sell the currency.
Slow return — That could explain some of the price action, but bitcoin mining is location agnostic and other parts of the world offer ideal conditions for mining, like Texas, where the cost of running mining computers is low. It will take time for miners to move their infrastructure out of China and go elsewhere, however, which could hurt bitcoin in the short term. You might be able to finally buy a graphics card, though.
Huge run-ups in the price of bitcoin have always brought in new investors, some of whom surely stick around even after a crash. That means these types of events are actually good marketing for bitcoin, as its “price floor” remains higher than in the past. It just might take some time for the currency to rise again as some people are likely disinterested and have fallen out of trading.
Either way, it’s unlikely this crash spells the end of bitcoin. The cryptocurrency seems here to stay as it has become a digital equivalent to gold, an asset that people buy and hold onto as an investment. Even though it’s not the same as gold because bitcoin is just ones and zeros, its implicit value comes from the fact that there are enough people out there who believe it has worth.
If you’re going to buy bitcoin yourself, just be careful. It’s still a (very) speculative asset.