Bitcoin : The real reason for the drastic decline

Many have commented on the massive decline of Bitcoin recently by blaming it on protests in Kazakhstan – but is that really the reason? Most likely, no.

The reason why comments about Kazakhstan have been numerous these days is because, this country in Central Asia, is the third globally in terms of Bitcoin production (18%).

This process, also known as ‘digging’, requires large amounts of electricity due to the high power used by the processors needed to ‘dig’ Bitcoin.

And if we consider the low electricity prices in Kazakhstan, it certainly turns out to be the perfect place for many Bitcoin producers, many of whom have left China (second place for Bitcoin production) to move to Kazakhstan, like consequence of Beijing’s decision to ban the mining of any kind of cryptocurrency.

Recent protests in Kazakhstan, along with power cuts in the country, are said to have contributed to this huge drop in Bitcoin, which this Monday went for the first time in a whole month, below $ 40,000.

However, this is not the main reason:

• First, the value of Bitcoin is not directly related to the grid or more precisely, the value of Bitcoin does not depend on the production or not of the currency – because 90% of Bitcoin has already been mined – although, this gives an idea general investors about cryptocurrency security.

• Secondly, the value of Bitcoin has been falling for months, which suggests that the real reason for this decline may not be the unrest in Kazakhstan but the global crisis that has affected all other sectors of the economy.

• Third, recent comments by the Federal Reserve or the US Federal Reserve served as a ‘final blow’. These comments include some warnings about the tightening of the US Federal Reserve’s monetary policy, which above all will include raising interest rates.

Why is the US Federal Reserve influencing Bitcoin?

The reason is simple. For a long time, the global crisis, especially the oil crisis, has caused inflation figures everywhere to reach alarming levels. As inflation rises, US authorities are warning that they will be forced to raise interest rates in order to keep inflation in check and try to stem its further rise.

This has caused panic among investors in the global stock market, including Bitcoin. They fear an opportunity to raise interest rates, which would make their investments more volatile and risky.
“The actions of technology companies are particularly affected by these new policies, as they are extremely sensitive to an increase in interest rates,” said Fiona Cincotta, an analyst at City Index.

Another fact that could worsen the situation further, is the publication of updated inflation figures by the US Federal Reserve, this Friday, which may contribute to the spread of even more panic among cryptocurrency investors, which means that they will start selling them very soon so as not to risk deep losses.

Since the beginning of the year, Bitcoin has lost about 12% of its value.

Even the other most powerful cryptocurrency, Ethereum has lost 12% and other cryptocurrencies as well as Solana etc. Various experts told the Wall Street Journal that these drastic reductions are a sign that cryptocurrencies are risky investments for most people.

“This proves that Bitcoin behaves like a high-risk asset,” Noell Acheson, director of Genesis Global Trading, told the Wall Street Journal. There are those who unconditionally believe in the ‘immunity’ of the Bitcoin currency to inflation, but on the other hand there are also those who continue to think that cryptocurrencies are speculative in nature and that they are directly related to other fiat currencies.

What is Bitcoin?

Bitcoin is the name of the first cryptocurrency – the original – that launched the entire ‘virtual money’ system. It is designed to allow its users to make digital payments without having to depend on or rely on a financial institution like banks. It also means that users can send and receive money anonymously and duty-free, a feature of a decentralized system – the opposite of the centralized system in which we all participate on a daily basis, having banks and the stock exchange they set for both our services and transactions but also the very value of the currencies we use.

Where did Bitcoin come from?

In 2008, an anonymous programmer known as Satoshi Nakamoto uploaded a document known as a ‘whitepaper’ to a cryptography site, revealing its vision for the first cryptocurrency and a financial revolution that would affect the entire world.

Jane Jewellery

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