Is Another Seismic Bitcoin Crash on the Horizon?

2021 saw a break of all-time highs of the year followed by a series of severe corrections. Today, as we approach 2022, it is worth asking if there is another major Bitcoin crash on the horizon, or whether BTC will enjoy a stronger end to the fourth quarter.

Bitcoin is notoriously a volatile asset, but after a string of good news surrounding massive institutional acceptance, it was hoped that more stability would be secured across the cryptocurrency market.

Those hopes were dashed in April 2021 as Bitcoin shed more than 50% of its value in just over a month.

(picture: Optical Capital)

As Visual Capitalist data shows, the correction may have rocked a lot of new entrants into the cryptocurrency market in 2021, but the magnitude of the crash matches the currency’s history of significant price drops – the current record drop being around 86.7% between 2013 and 2016.

(picture: Queen Gekko)

As the above table shows, despite its long history of crashes, Bitcoin is still very successful in terms of impressive rallies and accumulating prices.

At the moment Bitcoin is near its all-time high, but there seems to be little clarity on what the world’s oldest cryptocurrency will do next. While some speculators are anticipating a significant rally, BTC’s disappointing performance in recent weeks has led others to anticipate the start of a sharp decline and bear market. With that in mind, let’s take a look at Bitcoin’s history to see if we can determine whether or not a crash is on the way:

Learn from Bitcoin Courses

Arguably the most important quality that Bitcoin has in relation to most other cryptocurrencies is its scarcity. When Bitcoin’s pseudonym Satoshi Nakamoto built BTC, he chose to program the asset to undergo a ‘halving’ event every four years in a move that would consistently halve the number of BTC rewarded to miners over time.

These halvings have occurred three times in the past, in 2012, 2016, and most recently in May 2020. Halving events are programmed to occur within BTC continuously as the asset reaches its maximum circulation of 21 million coins.

(picture: Natixis)

As the chart above shows, the scheduled intensification of Bitcoin’s scarcity has traditionally sparked significant upwards movements that could see the currency making significant gains on its value. However, we can also see that rising peaks are always followed by severe accidents.

However, it is also worth adding that the next Bitcoin halving event, scheduled to arrive in 2024, is likely to trigger another price rally that could push the asset’s value beyond the 2021 peaks, despite significant volatility that will inevitably drop. between them.

(picture: with encryption)

The above chart analyzes the Bitcoin (S2F) stock flow model. In short, the concept of cash flow has emerged as a popular model that investigates how scarcity generates value. It is the ratio of the current stock of the asset and the new production flow.

Determined by crypto market commentator PlanB, we can see that – even when calculating its crash – BTC has been tracing its model from stocks to flow over time. Although we can see that the 2021 uptrend has yet to peak above S2F in 2021 in a similar fashion to all previous halving cycles. This means that the cryptocurrency may rise in value in the short term before the correction pushes it into familiar territory.

What will happen to BTC?

So, what will happen to Bitcoin? Is seismic collapse inevitable over the coming months? The PlanB stock-to-flow model indicates that the Bitcoin halving cycle has not yet run out, which could lead to a short-term price rally towards a peak around $100,000. However, as we can see from the coin’s history, a crash is also inevitable – even though BTC has never dropped below pre-halving prices.

“There is a risk of ‘confrontation’ with FOMO, which, combined with the high volatility inherent in crypto assets, could lead to a reasonably strong pullback in the event of reduced risk appetite and the absence of a sloping channel breakout,” warns Maxim Manturov, Head of Investment Research at Freedom Finance Europe.” “Therefore, one must be cautious at current levels and understand the speculative nature of these assets.”

However, Manturov also added that Bitcoin has been taking on more importance recently due to the asset’s strength in the face of rising inflation rates globally: “In general, Bitcoin’s recent rally reflects the currency’s broader use as a hedge against inflation and the availability of massive liquidity in the markets due to low interest rates and easing Quantitative”.

Essentially, Bitcoin’s short-term potential will be subject to the highly speculative market of which it is an essential part. However, investors should be wary of the upcoming correction. In the case of BTC, the future may not be written, but it is certainly encrypted within the framework of the currency.