Bitcoin falls: Despite ending the year with an appreciation of more than 60%, Bitcoin (BTC) underwent major corrections and price drops in 2021. What goes up, must come down. And in bitcoin’s case, this was sometimes within the hour.
2021 was a great year for the world’s leading cryptocurrency. Bitcoin reached a new all-time high, but this was also bundled with sudden price drops. Traders and investors were certainly in their feels about it, especially at the end of 2021.
Bitcoin has always been known for its strong volatility. While many investors make huge profits, billions of dollars can be liquidated overnight.
At the start of 2022, we can look back on the past year and examine the main downfalls of BTC and the lessons they can bring.
February – Elon Musk’s first negative effect on bitcoin
The first big, unexpected drop in BTC occurred in the last week of February, starting on the 22nd. The cryptocurrency was accumulating an appreciation of almost 80% during the month. This came about mostly due to the praise that Elon Musk and other personalities in the investment world were giving it.
However, a simple tweet from the billionaire was able to change everything. After saying that Bitcoin and Ethereum prices seemed too high, the price of the main cryptocurrency in the world lost around $9,000 in just a few hours, the biggest daily drop in its history so far.
The downward trend continued over the next few days, bringing BTC from $57,000 to a low of approximately $43,000 – a 25% devaluation in just one week.
The expiration of thousands of BTC contracts and statements by the US Treasury secretary were also attributed as reasons for the asset’s price drop.
Bitcoin falls in April – euphoria attracts whales
Bitcoin managed to bounce back from its first big slump of the year. It hit a new record price of over $64,000 on April 14th. However, two days later, the asset entered a strong downtrend. It lost almost 30% in just 10 days.
The main altcoins followed the downward movement of the BTC. This caused the crypto market to lose more than $200bn on the 18th alone. The main justification given for the sudden correction was the movement of whales. They took advantage of the retail investors that were in extreme euphoria buying the asset.
After this bearish period, general market sentiment reached the highest level of pessimism in a year. A possible increase in the US income tax, which could affect cryptocurrencies, was also used as justification for this correction period.
Bitcoin falls in May – Musk and China attack again
Bitcoin was showing signs of rebounding from its April slump until Elon Musk appeared again. On May 12, he announced that Tesla would no longer accept cryptocurrency as a means of payment. He claimed that BTC mining was harmful to the environment.
A few days later, the Chinese government again announced restrictive measures on Bitcoin mining and trading, starting a new wave of bans. As a result, the price of the cryptocurrency took its biggest drop this year. It plummeted from $57,000 to a low of $30,000 in just seven days.
Bitcoin falls in September – traders get greedy again
After closing the month of July at an increase above 70%, Bitcoin again suffered a sudden drop in September. On the 8th, the cryptocurrency collapsed more than 18% in just a few hours, causing a liquidation of more than $4 billion.
As a result, the BTC started a downtrend that lasted for the rest of the month. In the days leading up to the drop, sentiment indicators showed that retail investors were once again extremely greedy in the market, providing the necessary liquidity for whales to dump large sell orders.
Bitcoin falls in December – new wave of covid-19 affects BTC
Bitcoin has been on a downtrend since November 10, after it hit a new record price of $69,000. However, a sharp downward movement was seen on the third of December. This caused the asset to depreciate by around 25% in just 48 hours. The result was a liquidation of $1.8bn in the market.
There were a few reasons for this correction: Actions of retail traders, the year-end period, and fears regarding a new wave of Covid-19 were among them.
What do Bitcoin crashes teach us?
Bitcoin will always go through times of correction or downtrends, just like virtually all financial assets. Therefore, traders and investors who intend to make a profit by investing in this asset need to be prepared for these moments.
Some lessons can be drawn from analyzing the main declines of BTC in 2021. There is one main reason that stands out. In the same way that government and large companies or individual announcements can positively impact the asset price, these organizations and individuals also have the power to momentarily drop any cryptocurrency. Therefore, it is necessary to be aware of what is happening around the world in relation to cryptocurrencies.
In addition, it is necessary to pay attention to the movement of whales and market sentiment. In times of great euphoria, these large BTC holders can carry out large sell orders, causing sharp drops in the cryptocurrency price.
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