As we are getting closer to the half of 2022, investors are wondering whether to expect a new Bitcoin crash this year. There are many reasons that could push Bitcoin lower while others could help BTC reach a new all-time high in 2022. Therefore, it becomes very difficult to predict what can happen or not with virtual currencies.
Despite that, there are some things that could push Bitcoin lower in 2022 and even in 2023. But which are these issues that could affect Bitcoin in the coming months? In this post, we share with you all the information you should have about what Bitcoin is, how it works and whether there could be a new Bitcoin crash in 2022.
Disclaimer: the information shared by UseTheBitcoin and its writers should not be considered investment advice. This is for educational purposes only.
What is Bitcoin?
Understanding what Bitcoin is will help us have a clear idea of whether this virtual currency can crash or not in 2022. Bitcoin is the largest cryptocurrency in the market. The coin was created back in 2009 by Satoshi Nakamoto and it has been running since that moment. There are only 21 million BTC that will ever be mined and the network is now processing millions worth of transactions every 10 minutes.
Over the last few years, Bitcoin became one of the most valuable assets in the world, surpassing the market valuation of large companies from all over the world. Thanks to the fact that Bitcoin has a limited supply and no central authority, it became one of the largest currencies in the world in terms of value, and it continues to grow over time.
Another thing that is worth taking into consideration is that several companies have already added Bitcoin to their balance sheets. Therefore, Bitcoin is not only used as a speculative asset but it is also used by investors and companies to hedge against fiat risk and systemic risk.
Additionally, El Salvador became the first country in the world to make Bitcoin legal tender. In the future, other countries or jurisdictions could follow. This shows that Bitcoin is becoming an incredibly useful asset, especially in developing countries. However, this does not tell us anything about whether a Bitcoin crash could happen this year.
We will not get into the details of how Bitcoin works in this guide. At UseTheBitcoin we have created a full guide about What is Bitcoin? that will let you learn all you should know about this unique digital asset. It is very important to know how Bitcoin works and why it is a highly demanded asset that has many similarities to gold.
Bitcoin Price In Recent Years
To understand if a Bitcoin crash could happen in 2022, we should also have a look at the price action of Bitcoin in recent years. We see that the coin has been moving from below $600 in 2016 to over $69,000 in November 2021.
This shows that there has been a strong demand for Bitcoin. The first strong demand for BTC in recent years took place throughout 2017. At that time, the cryptocurrency market was moving higher and larger as new tokens were released on a daily basis. Initial Coin Offerings (ICOs) became the most popular blockchain-related projects at that time.
One of the easiest ways for investors to buy these ICOs was by using either Bitcoin or Ethereum (ETH). Due to this reason, Bitcoin moved from $1,000 to over $19,000 in 2017. This is how a large number of investors heard about Bitcoin for the first time in history.
Another important moment for Bitcoin took place in 2021. The year started with a very strong move higher. Bitcoin surpassed $60,000 for the first time during the first half of 2021. Investors that entered the market many years ago were able to experience incredible gains and profits. But the market did not stop there.
Indeed, by the end of 2021, the coin got very close to $70,000 per coin. This was the highest point for Bitcoin since it was created when comes to its price. Therefore, we see that there has been a strong demand for BTC and the coin was able to reach massively high prices since it was released in 2009.
At the moment, there is no clear information about what could happen with Bitcoin in the future. Nevertheless, it might be possible for BTC to continue growing higher in the coming years as well.
What is a Bitcoin Crash?
There is no standardized definition of what a Bitcoin crash is or how it happens. Basically, when we talk about a Bitcoin crash we have in mind a situation in which Bitcoin’s price falls fast and in a short period of time. This could be considered a short term Bitcoin price crash. What happens after is not so important as the fact that Bitcoin fell for a short or a long period of time.
Another thing that could happen is that Bitcoin could enter a long term bear trend such as the one that experienced in 2018 after the bull market in 2017. This is not exactly a price crash, as it took almost an entire year for Bitcoin to reach its lowest point after reaching an all-time high at the end of 2017.
In 2018, Bitcoin crashed many times. In just a few days, it moved from $6,400 to $3,200. This could be considered a crash. Bitcoin lost 50% of its value in a matter of days. Indeed, most Bitcoin crash takes place in just minutes or even hours. The price moves downwards very fast and without many expecting it.
As investors see the price move lower, they panic sell and the crash increases in terms of volume. The market continues to move lower and more investors decide to sell. This is why some Bitcoin crashes in recent years were so strong and in such a short period of time.
Another important time in which Bitcoin crashed was in March 2020 when coronavirus spread all over the world. At that time, people did not know what could happen with coronavirus. Governments imposed strict lockdowns and quarantines and Bitcoin and financial markets moved downwards.
Therefore, we see that there have been many times in which Bitcoin crashed and the market corrected in very short periods of time. But could this happen in the future once again?
Will Bitcoin Crash Again 2022?
It is not possible to predict whether a new Bitcoin crash event would take place in 2022. Can it happen? Yes, it can happen at any moment, especially if there are some triggers that would have an influence on the market.
Some of these triggers include unexpected harsh regulations towards Bitcoin in a large economy (for example in the European Union (EU) or in the United States), an attack on the Bitcoin blockchain, a hard fork such as the one that took place in 2017 or many other issues that could be harmful to Bitcoin.
Hard Regulations Against Bitcoin
We have seen many countries impose very hard regulations on Bitcoin. China is one of the countries that decided to go against BTC holders and the whole crypto market. It is clear that this decision is related to the fact that Bitcoin is a leading asset in a decentralized market, exactly what China does not like.
But what would happen if another country decides to ban Bitcoin? What would happen if suddenly the European Union decides to ban Bitcoin usage in the continent? What would happen if the United States forbids people from using BTC?
There will definitely be a market crash. We cannot be 100% sure, but there is a very high possibility that the Bitcoin price would move rapidly downwards. This is something that has already happened many times in the past, especially when China announced they were banning Bitcoin.
It is also worth taking into consideration that the European Union and the United States have a strong influence in the market. Therefore, having these countries ban Bitcoin could definitely stop the flow of funds towards the largest cryptocurrency in the world. They might not fully stop, but they would definitely slow down, reducing the buying pressure on BTC.
It would be very important for us to be able to understand which effect hard regulations could have on Bitcoin and the entire crypto market. Whether this will happen in 2022 we don’t know. A Bitcoin crash is usually unexpected and it includes selling fear in the market.
Bitcoin 51% Attack
Let’s continue with another thing that could create a Bitcoin crash in the future. Do you know what a 51% attack is? Well, this is an attack that can be performed against Proof-of-Work (PoW) blockchain networks and that involves controlling 51% or more of the hashing power of the blockchain network to control transactions.
At the moment, the Bitcoin network is decentralized and there is no institution or party controlling more than 50% of the hash rate. Due to this reason, it becomes very difficult to perform a 51% attack on this blockchain network. Despite that, it is very important to always control how the hash rate is split in the market.
But how do we add power to the Bitcoin network? Each Bitcoin miner with its ASIC machines provides hashing power to the Bitcoin blockchain. The larger the number of miners and the more powerful the ASIC devices, the stronger the network becomes. It would be almost impossible for a country the size of Austria or Norway to conduct a 51% attack on the Bitcoin blockchain even if they were able to use all the energy available.
However, a larger country such as China or the United States could conduct a 51% attack on Bitcoin, which would make the network less secure and less attractive for investors to hold their wealth in. If there is a 51% attack on Bitcoin, this would definitely push the price lower as soon as investors realize that their transactions can be reversed at any time by the attacker.
Another important thing that we did not talk about and that could make Bitcoin crash in 2022 is related to a hard fork. A hard fork is a split on the blockchain network due to a lack of consensus in the Bitcoin community. There has been a hard fork on Bitcoin when the community did not find a consensus on how to scale the Bitcoin blockchain.
Bitcoin Cash (BCH) proponents believed that the Bitcoin network should have larger blocks. This would have allowed for more transactions to be processed in each block and lower fees for users. Instead, Bitcoin (BTC) supporters considered that in order for Bitcoin to grow and survive it should scale using second-layer scaling solutions such as the Lightning Network (LN).
If the community cannot reach a consensus on different topics, then this could be a reason for Bitcoin to crash. For example, a part of the community might be in favour of Bitcoin having more than 21 million BTC. If there is a hard fork, then Bitcoin could definitely move lower.
This could also happen if both networks have relative strength. If Bitcoin and the forked network remain active in trying to get the largest hash rate, then there could be uncertainty in the market and this could harm the future price of Bitcoin.
There are many other issues that could make Bitcoin crash at any moment, not only in 2022. One of the things that you should take into consideration is related to the fact that the market might experience flash crashes. These Bitcoin crash events take place in seconds or minutes and they push the price of Bitcoin lower before moving higher after it.
Usually, a Bitcoin crash can happen in markets (cryptocurrency exchanges) with low liquidity where an investor sells a large amount of Bitcoin pushing the market lower before the price comes back to its previous level.
Additionally, any type of event or news that could affect Bitcoin could push its price lower at any moment. Therefore, it is very important to understand and follow which are the issues that could make Bitcoin crash in 2022. That being said, we do not know whether this year there will be a Bitcoin crash or not. Nonetheless, if some of the things that we mentioned in this article were to happen, then we could see Bitcoin moving lower.
Getting information from different sources and being ready to buy the dip (having liquidity) are good things to take into consideration in order to be prepared for these types of events.