Data Focus

Bitcoin’s third down-cycle singes many first-time investors

Ram Narayan Murthy | | Updated on: Jun 21, 2022

Decline due to central bank tightening, Russia-Ukraine war, many countries tightening regulations

Bitcoin prices have been plunging sharply over the past weeks as a wave of risk aversion hit global financial markets. The crypto market size fell from $2.9 trillion in November 2021 to $877 billion in June 2022 just as bitcoin breached the $20,000 mark. Many new investors who had begun investing in these assets over the last two years would currently be staring at steep losses.

But this is not the first time that cryptocurrency investors have made big losses. Bitcoin has witnessed three major falls of more than 50% since its inception.

Tracking cryptos

Bitcoin has dropped 55.3 per cent from $46,333 in December 31, 2021 to $20,676 on June 20. The loss from the November 2021 peak of $67734 is even wider at 69.4 per cent.

While the decline is due to a combination of factors including central bank tightening, Russia-Ukraine war and many countries tightening regulations, investors who bought the cryptos in 2019 and 2020 would not have too much to complain about. Annual return made by bitcoin amounted to 95 per cent in 2019, 305 per cent in 2020 and 51 per cent in 2021. The third cycle in bitcoin has yielded large returns to those to bought earlier in the cycle.

Lure for 1st time investors

A survey conducted in 2021 by Brokerchooser shows that more than 47 per cent of first-time investors in India are interested in cryptos. Brokerchooser is a platform that helps independent investors and traders find an online broker who suits their requirements.

India ranks 2nd behind South Africa among the 10 countries with the highest interest in cryptos. This shows that an increasing number of first time investors are willing to invest in crypto currencies irrespective of their volatile nature.

Other bitcoin cycles

The first big Bitcoin crash was due to the crypto ban in China which led to a fall of 57% in the 2013. The price dropped to $317 in December 2014 from $746 in December 2013.

It gained momentum in subsequent years, in an unprecedented boom, to hit a high in of $14,043 in December 2017. What followed was a vicious fall, once again led by regulatory tightening. Prices fell more than 73 per cent by December 2018 to reach $3674.

The only difference this time is that the asset class has gained immense popularity due to the pandemic. This has meant that the number of Indian investors who have suffered in this fall is much larger.

Published on June 20, 2022
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