Weeks after reaching a new all-time high, the value of bitcoin slipped as much as 20 per cent over the weekend.
According to eToro crypto analyst Simon Peters, “speculation has been rife over what caused the flash crash, with some analysts citing the expiry of leveraged positions”.
While the backdrop of market fears around the discovery of the Omicron variant may have been a driver for this most recent “flash crash”, he said that evidence suggested that a significant increase in the volume of investors moving crypto assets from wallets to exchanges may have played a larger role.
After setting a new high of approximately $68,000 in November, bitcoin has been plagued by setbacks. Experts have flagged a number of potential causes for this, ranging from anxiety over the Taproot network upgrade to implications of the US infrastructure bill on the crypto economy.
The price of bitcoin started last week at around $57,000, but by Friday had slipped to a low of $45,412.
Ethereum, which has been relatively resilient in the face of bitcoin price movements over the last few weeks, also fell. The world’s second most popular cryptocurrency started Friday at around $4,600 per unit, but quickly slipped by 20 per cent to a low of $3,652 per unit.
Both crypto assets have regained some stability and value in the days since, but it’s a timely reminder for investors that the volatility of the crypto market shouldn’t be underestimated.
Mr Peters said that recent ATHs for the most popular cryptocurrencies were always likely to invite a measure of profit-taking from heavy investors looking to lock in gains.
“Both BTC and ETH go from strength to strength, and the ups and downs of the market are a part of this story,” he said.
With concerns around inflation continuing to grow, backers expect that the market value of the world’s most well-known crypto asset will recover sooner rather than later.
deVere CEO Nigel Green said that the growing popularity of bitcoin as a hedge against inflation could supplant the appeal of assets like gold.
“Gold has always been regarded as the ultimate inflation hedge – but the world is a much different place now,” he said.
Mr Green argued that the shift towards a global economy almost entirely run-on tech and digital solutions would see cryptocurrencies like bitcoin win in the long run.
“Gold is likely to be dethroned within a generation as millennials and younger investors, who are so-called ‘digital natives’, are going to be more comfortable with bitcoin as a hedge than a physical metal,” he said.
For now, he said that the two assets could have a complementary relationship within the portfolios of investors.
“But as the world continues to pick up momentum in its shift towards tech, and as millennials become a more dominant part of the world economy, we should expect bitcoin to also take an increasingly influential role in financial markets, including in regards to being an inflation hedge,” he said.
