Several major factors that led to the sharp drop in Bitcoin, what should we do next

Yesterday, my friend said that he had withdrawn his money, but the market plummeted today. Many people do not know the reason for this plunge. Most analysts only speculate the reasons after it happens. Their purpose is to constantly revise and explain their models so as to better predict the market in the future. According to this idea, let’s talk about the factors that caused this big drop today and analyze them.

1. The US election is over

There is no doubt that the US election is one of the highlights of the world in 2020 and the focus of world attention in January 2021. Many of us can actually find that the price of Bitcoin continued to rise before the election, and it accelerated after the election. It was not until Biden entered the White House that the price of the currency fell sharply. Why did this phenomenon occur?

The author believes that it is mainly related to the nature of Bitcoin. Bitcoin is a diversified supra-sovereign asset that has both investment attributes, speculative attributes, and safe-haven attributes. The speculative attribute is mainly reflected in the sharp rise and fall, the investment attribute is mainly value storage, and the safe-haven attribute is mainly because the total amount is constant and the holder has high autonomy. These attributes have different effects in different periods.

The main reason why Bitcoin prices rose during the US election was actually risk aversion. The US election brought about strong uncertainty, which made many people choose to allocate a part of their assets in order to prevent risks. This led to a slow rise in Bitcoin prices.

After the results of the US election were announced, Biden was leading in votes. At this time, Trump challenged the results of the election, believing that there was fraud in the election, which created uncertainty again. Various lawsuits followed and more news reports. These uncertainties actually made Bitcoin a risk-resistant asset. Finally, the storming of the Capitol and the blocking of Trump's Twitter account pushed social risks to the highest peak. Because people can only rely on super-sovereign assets such as Bitcoin to ensure their future wealth under such uncertainty, Bitcoin continues to rise.

When Trump realized that the result was difficult to overturn, the price of the currency had actually been falling gradually until Biden entered the White House. In fact, Biden's entry into the White House also announced that the instability in American society has gradually disappeared, and the sword hanging over the heads of investment managers has been taken down. At this time, the entire society gradually began to operate as before, and naturally there was no need for so many risk-resistant assets. At this time, the price of Bitcoin naturally fell.

2. Difficult Spring Market in Previous Years

The spring crisis is generally concentrated in the four years of the bear market, such as 2018, 2019, and the beginning of 2020, which is the end of the lunar year. The period from the end of 2016 to the beginning of 2017 was a time period that we paid close attention to, and a relatively large correction also occurred. However, there was no spring crisis in early 2017.

The main cause of the spring disasters is actually quite simple and easy to understand, that is, there is a shortage of funds in the market. At this time, the general manifestation is that the prices of investment assets will fall, and the prices of daily necessities will rise. In short, stocks, funds, etc. will usher in a correction, while commodities such as rice, flour, oil, vegetables and meat will generally rise. The principle behind this is the shortage of market funds.

For digital currencies, there are also spring difficulties. The spring difficulties in 2018, 2019 and the beginning of 2020 are more obvious. This is mainly because the overall market is still in a bear market. Naturally, the basic trend is to make money in the first half of the year and realize cash in the second half of the year, which determines that there will basically be a decline at the end of the year.

The market situation from the end of 2016 to the beginning of 2021 was mainly due to the impact of the Bitcoin halving. There were signs of a bull market in 2017. Therefore, at the end of 2016, not only did the currency price not fall, but it also rose sharply. This is similar to the end of 2020 to the beginning of 2021. If we look back, in fact, the currency price also experienced another wave of correction from the end of 2016 to the beginning of 2017.

So how will the market develop in the future?

If we look at the factors on the American side, Biden's entry into the White House is mainly to ease relations with other countries, and he has also started measures to prevent the epidemic and wear masks domestically, which has greatly reduced the number of deaths. Then society will further return to normal, which is a good trend, but the problem is that the normal operation of society also requires a lot of money, so inflation will appear to be relatively large at this time, so Bitcoin's safe-haven properties will be reduced, and its anti-inflation investment properties will increase, which will cause Bitcoin to usher in a new round of increases after a brief correction. In fact, in a word, it is still because of Bitcoin's strong consensus and scarcity.

If we look at it from the perspective of the Spring Festival, in general, the Spring Festival will be completed before the Spring Festival, and there will be no Spring Festival. In the bear market of previous years, Bitcoin will not change much, some altcoins may rise, and more general rises are basically concentrated from April to June. If we calculate in this way, that is to say, the possibility of launching a big market near the Spring Festival will be slightly reduced, and there will be a relatively large market until the Spring Festival or after the Spring Festival.