Cryptocurrencies had a relatively difficult year in 2022. The price of Bitcoin, the world’s largest currency, fell by more than 56% in the first eight months of the year. Altcoins such as Ethereum, Solana and Cardano had similar performance. As a result, the market capitalization of all digital currencies fell from an all-time high of more than $3 trillion to less than $1 trillion. In this article, we assess why BTC crashed and whether its price will rise in 2022.
Will Bitcoin price hit $40,000 by the end of 2022?
Bitcoin prices fell in 2022 for several reasons. First, its price fell due to soaring inflation and a change in tone from the Federal Reserve and other global central banks. To combat rising inflation, the Fed ushered in the worst period of modern times. It raised interest rates by 225 basis points and began a program of quantitative easing.
Historically, Bitcoin and other risky assets are weaker during periods of high interest rates. This also explains why other financial assets such as stocks fell while bond yields rose to their highest point in years.
Second, unlike in 2021, governments sharply reduced their fiscal stimulus in 2022. For example, the US government conducted two stimulus checks in 2021. Most of these funds went into the cryptocurrency industry. Instead of recovering, consumers had to face accelerating inflation.
Third, the collapse of key players in the cryptocurrency industry contributed to the collapse. The biggest fallers were Terra, Three Arrows Capital, Celsius and Voyager Digital. Therefore, there was a fear of infection in the market.
Finally, chain data showed that the number of transactions in the ecosystem decreased. Also, results from companies like Coinbase and Block showed that the number of crypto investors and traders decreased sharply in 2022.
Bitcoins were worth $20,000 on August 31. Therefore, this means that the currency will have to double to reach $ 0,000 by the end of 2022. For this to happen, the Federal Reserve will have to announce that it will end the migration cycle in the near future. Recently, however, the Fed has insisted that it will continue to raise interest rates. It has also indicated that it will keep interest rates higher even as inflation begins to slow. Therefore, it will likely be difficult for BTC to reach $ 0,000 unless the Fed changes its stance. However, some analysts believe that BTC has more upside in 2022 and beyond. Cathie Wood, for example, supported his claim that the value of the currency will rise to $1 million by 2030. He is optimistic that the bear market will capitulate in the coming months.
Should you adapt to market conditions or be prepared for future market changes?
However, there are some catalysts that could increase BTC prices in 2022. First, the Ethereum merger is expected to take place in September. Merging is the process of connecting the current PoW to the Ethereum light chain. The Ethereum merger has no direct impact on BTC, which is still a proof-of-work (PoW) cryptocurrency. However, it is likely to be indirectly affected due to the close relationship within the cryptocurrency industry. The price of BTC will likely increase if ETH rises after the merger. There are also regulatory issues affecting BTC and other cryptocurrencies.
For example, the lawsuit between Ripple Labs and the Securities and Exchange Commission (SEC) is expected to end in 2022. BTC and other cryptocurrencies are likely to react to the decision.
Another possible emerging topic towards the end of the year is the use of cryptocurrencies. Robots are products that perform analysis and transactions. To some extent, some crypto traders using bots like Bit Index AI have seen their positions slow and growth slow as Bitcoin continues to decline in value. However, some trading bots have thrived during this year’s volatility.
At the same time, many countries are drafting regulations that could affect Bitcoin prices. Some of the main regulators to watch at the end of the year are the Securities and Exchange Commission (SEC), the Monetary Authority of Singapore (MAS) and the European Securities and Markets Authority (ESMA).
Bitcoin has had a difficult 2022 as concerns about monetary policy, regulation and fiscal policy remain. Its performance mirrored that of other financial assets such as stocks and bonds. Going forward, its recovery will depend on how the Fed responds to a tight labor market and slowing inflation in the United States. In fact, the currency rose slightly in August as investors expected the bank to ease as inflation eased. Then it disappeared when Jerome Powell and other members of the Federal Reserve hinted that interest rates would remain high at the Jackson Hole Symposium.