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In November of last year, Bitcoin, the representative cryptocurrency, which reached an all-time high of approximately $69,000, showed significant volatility, surpassing the $40,000 resistance level as the price plummeted in the aftermath of various hot issues.
Several reasons may contribute to the recent decline, but we will introduce two major issues for this article. Nevertheless, we will also discuss the optimistic future of Bitcoin.
Jerome Powell, Source: Reuters
Let's start with the remarks of the US Federal Reserve Chairman Jerome Powell at the recent Senate confirmation hearing on the 11th of January. The hearing itself and concerns regarding the possibility of a key rate hike and quantitative tightening appear to have had a significant impact on the preemptive decline in the Bitcoin price.
Interestingly, the cryptocurrency market seemed to be stabilizing after the 11th remark. Fed Chairman Powell denied the need for further stimulus amid inflation, nearing a 40-year high, noting that interest rates will rise “slowly.” He made it clear that it was ready to start raising rates to that end.
Kazakhstan citizens' protests intensified over the rising electricity cost as LNG prices skyrocketed due to the recent global crisis in securing LNG. In the aftermath of this, Bitcoin mining operations in Kazakhstan, the second-largest Bitcoin mining country, were stopped entirely, and the global Bitcoin hash rate plummeted by more than 10%. Considering that many bitcoin miners who left China last year moved to Kazakhstan, where electricity prices are low, this situation is rather severe. The “hash rate,” the computational processing power for Bitcoin mining, and mining difficulty are closely related. A decrease in the hash rate reduces the difficulty and easy mining of Bitcoin, while a decrease in scarcity acts as a downward price factor.
The Future of Bitcoin Remains Bright
According to an analysis by CryptoQuant, a blockchain data company, anonymous wallets continue to purchase bitcoins despite the downtrend, increasing the amount of Bitcoin in their wallets.
In addition, CNBC cited the analysis of Blockchain.com, saying, “90% of the 21 million BTC in the total Bitcoin supply has been mined. Mining is estimated to be complete in February 2140. ‘Digital miners’ can keep getting bitcoins until then.” What was initially thought to take 130 years to mine, 90% of it has been mined in 12 years.
According to the indicators released by Coin Metrics, which specializes in cryptocurrency (Crypto Asset) analysis, the actual circulation of Bitcoin is expected to be around 14.5 million BTC rather than the 18.6 million BTC stated on many information sites. In other words, it can be seen that the supply will decrease by about 3.9 million BTC, which may have a positive effect on the price.
The theory of the fiat currency crisis caused by inflation and the idea of Bitcoin fiat replacement is an indicator of Bitcoin's bright future.
Two-thirds of Turkish bank deposits consist mainly of dollars and euros. Turkish banks are lending dollars to the central bank and the government, which are used to intervene in the foreign exchange market in the fight to sustain the lira. If they rush to withdraw dollars, it is questionable whether the government will be able to raise the dollars, as Turkish banks will have to return some of those dollars to meet the needs of their depositors.
The rise in volatility and inflation of the Turkish lira in recent months shows that cryptocurrencies are being recognized and invested as a profitable investment in the long term or a hedge against inflation in the short term.
As the value of currencies in low-income countries is extremely vulnerable to market changes and unable to prevent inflation, we can expect an increase in countries such as El Salvador to choose Bitcoin as their primary currency. Adopting cryptocurrencies as a legal currency will reduce the impact of inflation. Since it would also mean their dependence on foreign currency remittances, some countries are most likely to adopt them. Currently, the world's reserve currency is the US dollar, but each country's debt is severe. For the United States, it shows a figure that surpasses all of them, putting all countries are at risk if the United States' economics collapses. The country's political stability, reliability, and transparency also greatly influence the global dominance of money. On the other hand, if cryptocurrency becomes a key currency, it will have advantageous features such as openness and liquidity to act as a key currency.
Due to these hot issues, the price of Bitcoin is constantly rising and falling.
At MCS, we believe that Bitcoin will continue developing and overcoming this series of events, we promise to be with you at the center of it.
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