Tuesday, May 21, 2024

Why Did Bitcoin Price Drop in December 2020?

Why did Bitcoin price drop by approximately $1k in December 2020? When I read the news on Yahoo!Finance, Coindesk, and other platforms, I found headlines announcing Bitcoin prices dropped “$1,000 In Worst Sell-Off in a Week” on December 8, 2020, and while traditional markets were comparatively stable, it wasn’t a good time for cryptocurrency in general; Ether and Litecoin are reported to have dropped as much as nine percent in one case over a 24-hour period and sources report that “all 17 free-floating cryptocurrencies besides bitcoin in the CoinDesk 20 have dropped between 6% and 12% in the past day.”

Don’t Panic

Volatility is always an issue to worry about in cryptocurrency; investing, in general, is as much about psychology as it is about moving money from one investment to another. Admittedly that is a gross simplification of what investing is, but so are the feelings of panic some have when trying to sort out the news on a day-to-day basis.

But understanding what causes price drops (and the causes are varied, depending on circumstances) and value increases in any investment can help you to make actual informed decisions about what to do with your investments rather than making emotional decisions.

In the case of the Bitcoin price drop, opinions vary. One article published by Coindesk quotes Ki Young Ju, CEO of CryptoQuant, opining about the availability “of sizable amounts of bitcoin on exchanges provided by large holders” known as “whales” keeping Bitcoin available for sell orders on the crypto exchanges. Supply and demand, he says, is important data when trying to predict short-term crypto prices.

Bitcoin Price Drop: Profit Taking?

But other market watchers view the recent price drop as the result of profit-taking. In either case, a smart investor tempted to sell in a panic does well to ask (regardless of the nature of the investment whether Bitcoin-based or more traditional stocks and bonds) “What happens if I simply wait this out?” The answer doesn’t always make one hold instead of sell. But it IS worth asking.

The ebb-and-flow of Bitcoin’s value makes more sense to those who have a history of watching Bitcoin; if you have little experience with this investment’s ups and downs, it will be far more tempting to panic-sell. But some believe that such price fluctuations and volatility may become rarer as cryptocurrency gains traction among established financial institutions.

Companies such as Walmart and Google continue to devote resources toward mobile pay and digital payments and while it may take some convincing to get a major company to experiment with cryptocurrency, the longer crypto remains and the more interest it gets, the more likely it is that someone will experiment with accepting Bitcoin or others in a way that actually works and catches on with the public at large.

More Acceptance Needed

The key will be how the marketplace evolves. Volatility isn’t a good thing when it comes to capturing the attention of an established corporation interested in giving crypto a try; until further steps can be taken to assuage the fears of those holding the research and development purse strings, we may see cryptocurrency remain on the sidelines in the American consumer culture.

But savvy investors we will have with us always and those who learn to resist the panic selling urge when prices drop the way they did this week will not only endure as investors, they may actually help pave the way for greater legitimacy and consideration by retailers in the U.S.A.

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