Bitcoin made headlines last year after reaching meteoric heights. At one point, each Bitcoin was valued at over $19,000, driving up interest in cryptocurrency investments.
But since that peak, the Bitcoin decline left many who aren’t familiar with cryptocurrency investments with questions. Most notably, what was causing Bitcoin to sink.
If you’ve asked yourself the same question, here’s what you need to know.
Government Regulation and the Bitcoin Decline
One of the most attractive traits of Bitcoin was the lack of regulation. Initially, governments gave little notice to cryptocurrencies, particularly because they weren’t prominent in the market.
After Bitcoin’s rise, regulators took notice. This led many countries to begin piecing together legislation, impacting how the currencies usage, tracking, and taxation.
While new regulations aren’t universal, even the idea can shake up the international cryptocurrency market. This led some to sell their Bitcoin currency, and a large selloff negatively affects the value.
Bubbles and Market Correction
Some liken the quick rise of Bitcoin to a bubble. The increase in the cryptocurrency’s value was, at times, staggering, causing many who were not previously thinking about investing to jump in, pushing the price even higher.
However, such an onslaught of interest usually doesn’t last. When investors who were late to the game don’t experience significant gains, some abandoned their investment, causing the price to fall.
While investment professionals don’t always see eye to eye on the matter, some believe that the Bitcoin decline reflects a market correction. Ultimately, they think that the change in price is bringing it in line with actual market value.
The Presence of Altcoins
Since Bitcoin rose to prominence, the number of Altcoins (other cryptocurrencies that aren’t Bitcoin), skyrocketed. This gives investors additional options when it comes to purchasing cryptocurrencies.
Some investors are hoping to find an Altcoin that has the potential of Bitcoin. This means they are focusing on low-cost options that could experience a similar rise in value.
As more Altcoins become available, cryptocurrency investors may choose alternatives in the hope of striking it reach as an early investor. Since it is unknown whether Bitcoin will recover, this may lead them to shy away from the giant that started it all.
However, some finance professionals believe that Bitcoin could recover. In general, the market is volatile, so the Bitcoin decline of today may not remain indefinitely.
Will the Bitcoin decline continue? It’s too early to say. The potential is there for it to recover, or at least reach a point of homeostasis. Will another cryptocurrency skyrocket? That’s also hard to predict. The sheer number of Altcoins is staggering and continuing to grow. Ultimately, whether the underlying mechanism holds value is a factor, but that may not be realized for years to come.
Have you invested in Bitcoin or another cryptocurrency? Tell us about your experience in the comments section below!
Looking for more great articles from All Things Finance? Here are a few to get you started:
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Tamila McDonald is a U.S. Army veteran with 20 years of service, including five years as a military financial advisor. After retiring from the Army, she spent eight years as an AFCPE-certified personal financial advisor for wounded warriors and their families. Now she writes about personal finance and benefits programs for numerous financial websites.
