Why Bitcoin Crashed

Bitcoin crashed to around $42,000 dollars a coin Saturday before recovering to 49k which is still very far from its previous all time high of around $69,000 a coin which it achieved on November 10th. Bitcoin was trading between 50-60k a coin before the massive sell off. 

There are many reasons Bitcoin crashed. One of the dominoes that led to the massive sell off was the Omicron Covid variant. This led to huge sell offs in stocks, metals, and crypto as investors were weary of this new variant. This was what started the Bitcoin sell off. The next factor was the Federal Reserve's response to inflation. One of the main reasons people hold Bitcoin is as a hedge against inflation. When inflation fears are up, Bitcoin should also go up. The Federal Reserve's response to inflation caused investors to not be as worry about inflation which caused some to sell off some Bitcoin. These two factors are what caused the initial Bitcoin sell off, but they are not what caused the market to crash. 

What caused the crash was people who were over leveraged. Leveraged trading allows investors to make huge bets on Bitcoin with little capital. When an asset that one is leveraging decreases in value enough, one can experience forced liquidation. It seems like the Omicron news and Federal Reserve's inflation response caused the price of Bitcoin to go down enough for leveraged traders to get demolished. This forced liquidation of the currency is likely to be responsible for the crash. 
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Leverage trading is a very risky move especially on an asset as volatile as Bitcoin. It is definitely not a strategy that most investors would recommend and takes a great deal of luck to succeed in. Bitcoin is currently trading at around $49,000 dollars a coin, and it will be interesting to see how it recovers from here. 

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