Why is Bitcoin down?

27 Jul, 2022

Over the last months, Bitcoin has been crashing. The cryptocurrency is dropping sharply in value and the non-expert investors wonder why it is falling drastically in such a short time period.

Many factors can influence the price of Bitcoin. Cryptocurrencies are highly volatile and this implicates uncertainty for investment decisions when the market is having a hard time. For Bitcoin, there is a domino effect. The Russia-Ukraine war has been causing an energy crisis throughout Europe, where countries like Germany depend on the Russian gas to live, especially in winter. With the ongoing war, the countries of European Union understand that they can no longer depend on Russia and they must search for alternative energy sources to supply the continent’s energy demand, what increases power generation costs and, consequently, reduces the resources of these countries for investments in other areas.

In addition, the war has caused a shortage in global production chains, since Ukraine is one of the most important grain producers on the planet; and we should also remember that the world has just gone through a pandemic that has not yet been fully controlled and has impacted both the supply and demand of the whole market. This scenario has caused record inflation in the United States, the highest since 1981, and caused Federal Reserve (Fed), the U.S. Central Bank, to announce an increase in interest rate in an attempt to curb inflation.

The last factor we can highlight is that Argentina has banned its banks from offering any crypto-related services and this sets a precedent for other countries to do the same, thus decreasing the asset value substantially.

But what all of this has to do with Bitcoin decline?

Actually it is quite simple: in times of uncertainty, the market is driven by safer investments, such as the U.S. Treasury. These investments are more predictable and less volatile, what allows for a better planning by the investors.

If you are considering buying Bitcoins now as an advantage of currency devaluation, be aware that the scenario is not expected to change over the next months, since no one can predict when the Russia-Ukraine war will end or when the supply chains will normalize. The energy crisis is far from ending in Europe and even Euro, a solid currency, is declining. Therefore, Bitcoin might continue to fall.

The ideal for now is to continue to monitor the market fluctuations and in case you invest in cryptos, do it gradually and be prepared for further drops that may occur before the asset increases in value again.

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