Dissecting the Reasons Behind the Drop in Bitcoin Prices All

KOMPAS.com – Bitcoin (BTC) cryptocurrency prices have generally been declining since November 2021.

But a sharp decline in its price occurred this week. Likely triggered by rumors on Friday (21/1/2022) related to US digital asset regulations.

Reported Investopedia, Bitcoin price as of Tuesday (25/1/2022), nearly 50 percent below its highest level since November 2021.

Also read: Bitcoin Crypto Asset Prices Continue to Drop, Is it Entering the Crypto Winter Phase Like 2018?

Rumors of an upcoming US government strategy to regulate digital assets may have sparked the current sell-off.

The gradual tightening of the US Federal Reserve’s belt may also contribute to Bitcoin’s price decline.

Bitcoin Price likely to be increasingly correlated with the prices of other assets.

An unidentified source in the Joe Biden administration said last week that the government was developing strategies to address the economic, regulatory, and national security challenges posed by Bitcoin and other cryptocurrencies.

The government is reportedly also examining the opportunities created by the digital asset revival, with the Biden administration’s strategy potentially being published as soon as February this year.

Also read: Bitcoin Price Drops Again, Touches Its Lowest Point In The Last 6 Months

This possible report from the administration, although welcomed by those who believe Bitcoin could benefit from greater regulatory certainty, has prompted some traders to sell their Bitcoin holdings.

The decline in the price of Bitcoin from over 68,000 US dollars, to its current level, is equivalent to losing almost half of its value.

The price of Bitcoin is also affected by changes in US Federal Reserve policy. Federal Reserve Chair Jerome Powell said in December last year that the Federal Open Market Committee (FOMC) would double the monthly rate that reduces asset purchases.

The measures put in place by the Fed designed to control inflation had a negative impact on the price of Bitcoin.

The value of risky assets, such as Bitcoin, tends to decline after the Federal Reserve makes policy changes to become more fiscally conservative.

Also read: Continuing to Slump, Bitcoin Price Has Dropped Nearly 50 Percent from High Level

More broadly, as Bitcoin matures and becomes more widely adopted, the price of Bitcoin is increasingly correlated with the prices of traditional assets such as stocks.

This growing correlation means that any event that triggers a price drop in traditional markets is likely to trigger an equal or greater price drop for Bitcoin.

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