Bitcoin and the entire crypto market suffered a crash recently.
Here are the reasons for the crash:
1. Inflation/Interest Rate
2. Leverage traders
3. Kazakhstan
The US Fed towards the end of last year announced that it would reduce its government bond repurchase to control inflation.
This is an indicator that the Fed would soon increase interest rates.
I explained the positive/negative relationship effect of the change in interest rates on Bitcoin in this article
With increased interest rates, people who had borrowed when the interest rate was low would now have to pay at a higher rate than expected.
They would have to sell stocks, crypto and other investments to cover the potential losses.
This selling pressure would drop the price of stocks and cryptocurrencies.
Stock Indicies such as S&P 500 and Dow Jones also experienced a crash.
Bitcoin also felt the effect.
The second reason is Leverage traders.
Leverage traders trade crypto futures. They bet on the future price of cryptocurrencies, they usually do this with debt (borrowed money).
A lot of traders went long on Bitcoin with huge leverage. So when the market fell, they got liquidated which further drove down the price of Bitcoin.
Following the crypto mining ban in China, the majority of miners migrated to Kazakhstan.
Apart from the closeness to China, Kazakhstan offered cheap energy to miners.
Kazakhstan is currently experiencing social unrest due to anti-government protests.
The internet was shut down for 36 hours
However, CoinTelegraph reports that the activities in Kazakhstan have little or no effect on the Bitcoin hash rate.
Hash rate refers to the processing power of the Bitcoin network. The speed at which transactions are processed and confirmed
This is actually good news because it shows that is Bitcoin somewhat decentralized.
A good number of miners are located in New York, Miami, Texas and Kentucky. El Salvador started mining BTC from the heat of a volcano.
Ultimately, the best advice is to just hodl.
The market is already recovering as we speak. People are buying the dip!
