- Bitcoin, the world’s oldest and largest cryptocurrency, has been in a slump since December and various factors have led to the decline in Bitcoin’s performance.
- Russia's central bank suggested a ban on crypto mining and use on Russian soil last week, following the latest wave of worldwide cryptocurrency crackdowns.
- The central bank, which aims to produce its own digital rouble, has stated that the widespread adoption of crypto assets would restrict the central bank’s ability to implement monetary policy, with higher interest rates required to combat inflation.
Bitcoin started the year 2022 with a slump. The entire crypto market has taken a dip since last month, with the world’s oldest and largest cryptocurrency plunging 29% in one month.
However, the crypto market is extremely sensitive, it easily bounces back whenever positivity knocks on the door.
Nonetheless, amid Omicron tightening its noose globally, economic sluggishness, and erratic stances from various governments, the market is having difficulty to bounce back and so is Bitcoin’s performance.
Let’s look at factors that may have influenced the market to cause such a big fall in Bitcoin’s price and the crypto market altogether.
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Anti-crypto stance among countries
Governments globally have voiced concerns that extremely volatile, privately run digital currencies could weaken their control over banking and monetary systems.
Recently, Russia's central bank suggested a ban on Crypto mining and use on Russian soil last week, following the latest wave of worldwide cryptocurrency crackdowns.
Russian central bank’s stance on cryptocurrency
According to the central bank, the growth of cryptocurrencies is fuelled by speculative demand. Digital coins resemble traits of a financial pyramid that may affect citizens’ financial stability by triggering potential market bubbles.
The central bank, which aims to produce its own digital rouble, believes that the increased adoption of crypto assets will impact the power of the monetary policy as higher interest rates are required to combat inflation.
Moreover, the central bank has suggested that financial establishments must refrain from making crypto transactions and that measures should be drawn up to avoid any transactions involving the sale or buy of cryptocurrencies for fiat currencies.
The sharp criticism showcases Russia’s outlook that cryptocurrencies, including Bitcoin, might be used to fund terrorism and money laundering.
Russia’s crypto mining also prompted the government to adopt harsh measures. Russia is heavily involved in the crypto mining business, which has intensified since China banned crypto-related activities saying it was an illegal financial activity. Russia had promised to eradicate digital assets mining.
Russia holds the third position in Bitcoin mining in the world, trailing only the United States and Kazakhstan.
According to the Bank of Russia, crypto mining is using a considerable amount of energy. Powerful computers are connected to the global network, and they compete against others for solving complicated mathematical riddles in order to mine cryptocurrency. The process consumes a great deal of energy and is frequently powered by fossil fuels.
The Bank of Russia also stated that mining undermined the country’s green agenda, and intensified negative consequences of cryptocurrencies adoption, generating incentives to avoid regulation.
As per the bank, all these factors drove them to take harsh action against cryptos including Bitcoin.
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Other countries that have banned cryptos
Chinese policymakers stepped up their anti-cryptocurrency crackdown, imposing a blanket ban on all crypto mining and transactions. Moreover, the People's Bank of China (PBOC) stated that cryptocurrencies could not be traded in China and that international exchanges were not allowed to offer services to investors. It also forbade payment providers, internet companies and financial institutions from enabling digital currency trade across the country.
Bangladesh, Egypt, Tunisia, Iraq, Algeria, Qatar, Morocco and Oman are among the countries that have imposed complete bans. These countries have outright banned the use of Bitcoin, making it illegal to trade or even hold it.
What are additional factors that played a role in Bitcoin’s devaluation?
US’ stance on Crypto
Traders’ appetite for cryptocurrency has waned in recent months due to expectations of less liquidity and higher rates.
The price of Bitcoin plummeted post the US Federal Reserve’s latest major announcement. The Fed stated that it was continuing with the previously planned taper of bond purchases and that it intended to increase interest rates shortly.
With the market in the midst of a major crash linked to uncertainties over the Federal Reserve’s fight against inflation, the Biden administration is gearing up to reveal a government-wide policy for regulating cryptos as soon as February.
The Biden administration is set to come up with executive action, treating digital assets including cryptos, stablecoins, NFTs, and non-fungible tokens under a regulatory framework to add coherency to the government’s decision on Crypto and other digital assets.
The omicron tsunami has had a significant impact on Bitcoin’s price decline.
A multi-million-dollar Bitcoin fraud in Pakistan aided in lowering Bitcoin’s value.
The network shutdown in Kazakhstan early this month also contributed to the decline in Bitcoin prices. The country’s crypto mining industry is rapidly expanding, and the country’s internet outage harmed Bitcoin’s value.
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Every time a country started an anti-crypto regulatory crackdown, Bitcoin has taken a beating. Hence, all aforementioned factors including Russia’s recent stance regarding crypto raise questions on Bitcoin’s future performance.
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