In June of 2022, the crypto market saw one of its biggest crashes in recent history. Bitcoin and almost every other cryptocurrency saw their lowest prices in over a year, and this understandably led to a lot of panic in the market. However, there are also some people that believe this crash might just be good for future investors.
Why Did the Crash Happen?
Before I move on to how this current crash might help investors, let’s take a look at why the crash happened in the first place. Inflation in the US was at its highest point in decades throughout 2022, something that only got worse once Russia invaded Ukraine. In response, the U.S Federal Reserve decided to hike up interest rates by 0.5%, which is the biggest hike that the US has seen in almost 2 decades.
This has a disastrous effect on cryptocurrencies, including Bitcoin. Higher interest rates mean that people will be less likely to invest in volatile assets like crypto, which is why many investors started to sell as fast as they could.
As a result, the entire crypto market crashed. Bitcoin, Ethereum, and Binance all lost 40% of their value. Other cryptos weren’t so lucky, and they crashed so hard that they had to be delisted from almost every crypto exchange. Bitcoin’s peak in April of 2022 was around $41,000, but shortly after the interest rate hike was announced in May, the price of Bitcoin crashed down to around $28,000.
Obviously, anyone who has ever invested a dollar into Bitcoin was worried. A crash like this is unprecedented even in the worst of times.
However, Bitcoin wasn’t really “doomed”. For this, I’m going to make a comparison to LUNA, which was one of the top 5 largest cryptos in the world by market cap before the crash. LUNA was trading at around $80 at the start of May 2022, but do you want to know where its price was after the interest rate hike?
Less than 1 cent. LUNA lost 99.99% of all of its value in a matter of days, and it was taken off every crypto exchange you can think of. When you compare Bitcoin’s “crash” to LUNA, it suddenly doesn’t seem as devastating as before.
But still, I heard a lot of people saying Bitcoin is “due” for a LUNA-like crash and that the only reason it hasn’t crashed is that it’s a lot larger. But that’s still not true. If that were the case, we should’ve seen Bitcoin go down to zero by now at least.
But that’s the thing — we didn’t. Instead, we saw Bitcoin reach an admittedly-low price of 28,000, but then, it started going up to 29k, 30k, and even 31k before crashing back down to 18k. That’s not the world’s greatest recovery by any means, but it goes to show that Bitcoin is not in any immediate danger.
That’s because Bitcoin isn’t constantly falling. It fell because of the initial shock of interest rates, but at the very least, it didn’t go down any more than that. Right now, there are a lot more chances that Bitcoin will actually go up in value instead of going down. The low price of Bitcoin is also extremely attractive to investors right now.
They know what kind of prices Bitcoin is capable of reaching with just the right amount of hype around it, and they want to capitalize on these low prices before it’s too late.
Also, even though Bitcoin’s crash was pretty bad, it also sort of wasn’t, in a sense. To get a better idea of what I mean, we need to go back to 2021. Bitcoin reached a price of over $60k for the first time ever in March of 2021. It seemed almost unstoppable at that point, but in May, Elon Musk announced that he would no longer be supporting Bitcoin on his platforms, and this led to a chain reaction that caused a massive crash in the crypto market as a whole.
In May of that year, Bitcoin’s price was down to around $29,000 at its lowest. However, one statement by Elon Musk is not really worth more than the Federal Reserve hiking up interest rates. In fact, many people expected this announcement to literally kill Bitcoin since it was a much bigger deal.
But that wasn’t the case. During the 2021 crash, Bitcoin went from $58k to $31k in a matter of days. In comparison, during the 2022 crash, Bitcoin went from $41k to $28k. This is, by all means, a much smaller crash in comparison. The fact that Bitcoin’s price still managed to keep up despite the tensions and the stress shows just how much investors still believe in Bitcoin. So, if we were to take past precedence as an example anyway, what happened after the initial crash?
Well, Bitcoin kept going lower and lower all the way up until mid-July. This is also something we’re not seeing today. Around a week after the crash, Bitcoin slowly started to improve slightly almost every day.
However, after mid-July, Bitcoin’s price suddenly shot up. For the rest of the year, Bitcoin saw a lot of ups and downs, but its price reached its all-time high of over $67k in November of 2021. The peak happened after the crash, and this is despite the fact that no major changes were made. Elon Musk was still almost completely disassociated from crypto, and it didn’t seem like he was going to change his time anytime soon.
So, what caused this peak to happen? Nothing, really. What really happened is that people got over the initial statement. They stopped caring.
In the internet era, people have the attention spans of a goldfish. Even though there was a reason behind the crash, people quickly forgot the reason and were back to investing in crypto just a few months later. More and more crypto investors started to pop up towards the end of that year as well, and this is despite all of the setbacks that the crypto market faced.
But who benefited the most from these peaks? People who invested in Bitcoin while it was at its worst. After all, Bitcoin managed to not only recover but also give more than double the return on investment. It was really something out of a movie, and it gives us a very good lesson on what we can expect from Bitcoin in the coming months.
https://www.youtube.com/watch?v=IYeMS1r5nwE
As I’ve already mentioned, the current Bitcoin crash isn’t anywhere near as serious as the previous one was. The reason why the market is under so much panic is primarily because of LUNA. But it’s important to understand that LUNA and Bitcoin are two completely different cryptocurrencies.
LUNA crashed because Terra wasn’t able to keep its peg with the USD. Bitcoin isn’t pegged to anything. It’s still one of the most decentralized assets that anyone can invest in today. The distrust in LUNA obviously affected crypto prices across the board, including Bitcoin, but it’s not going to last forever.
This is why, in my opinion, Bitcoin is set to make a massive rebound in the coming months. Just like how people got over Elon Musk’s disassociation with crypto in 2021, people will eventually get over the rise in interest rates and the crash of LUNA in 2022. It’s only a matter of time before the world moves on to the next big controversy, and whenever that happens, you can be sure that Bitcoin will see a massive increase in price.
But there’s another reason why Bitcoin might just recover. You see, just like how controversy isn’t permanent, neither are interest rates. This level of inflation is caused by some extraordinary events, such as the Russian invasion. Eventually, the world markets are going to stabilize, prices are going to go down, and interest rates are going to be lowered as well.
This brings me to the next big reason why Bitcoin might shoot up in price — lower interest rates in the future. It eventually is going to happen, that’s almost a guarantee. There’s no way the U.S economy can handle high-interest rates like these for an extended period of time. Investors are going to be on the lookout for whenever it seems like interest rates are going to be lowered again, and when that eventually happens, they are going to put every last dollar into Bitcoin.
At this point, Bitcoin has proven itself to be an investment that can withstand some troubling times. This is only going to improve its reputation as an investment. Even though a day might come that Bitcoin might just be dethroned as the crypto king by Ethereum (or any other crypto, for that matter).
It really does seem like Bitcoin will cling to its spot at the top of the crypto ladder for a little while longer. But of course, none of this is confirmed, so we’ll just have to wait and see what happens in the next couple of months.
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