One, Introduction

1.1 Background and Purpose

Since its inception, Bitcoin has risen rapidly in the global financial market due to its decentralization, anonymity, and limited supply, attracting the attention of a large number of investors and financial institutions. As the largest cryptocurrency by market capitalization, Bitcoin not only dominates the cryptocurrency market, but its price fluctuations also have a profound impact on global financial markets. A sharp drop in the price of bitcoin often triggers a chain reaction in the cryptocurrency market, causing the price of other digital currencies to plummet, and at the same time, it will also affect investors’ confidence in the entire financial market, triggering market panic.

For investors, the decline in Bitcoin prices directly relates to the value of their assets and investment returns. Many investors put a large amount of funds into the Bitcoin market, expecting high returns, and a decline in Bitcoin prices may lead to significant losses for them. Therefore, understanding the reasons, impact, and future trends of the decline in Bitcoin prices is of great significance for investors to formulate a reasonable investment strategy and reduce investment risks.

2. Bitcoin Overview

The definition and characteristics of Bitcoin

Bitcoin is a virtual encrypted digital currency proposed by an individual or group named Satoshi Nakamoto in 2008 and officially launched in 2009. It is based on decentralized blockchain technology, does not rely on any central authority or government for issuance, and transaction records are stored on a distributed ledger, maintained and verified by numerous nodes globally, achieving true decentralization. Compared to traditional monetary systems, Bitcoin transactions do not need to go through financial intermediaries such as banks, but can be conducted directly between users, reducing transaction costs and increasing efficiency.

The total amount of Bitcoin is set to 21 million, which is gradually released through ‘mining’. As time goes on, the mining difficulty gradually increases, and the production speed of new Bitcoins continues to slow down. This limited supply mechanism makes Bitcoin scarce in theory, avoiding the problem of inflation, and also gives it a certain value storage function. In the transaction process, Bitcoin uses encryption algorithms to ensure the security and anonymity of transactions. Users’ personal information is encrypted, and only identity verification and transaction authorization are done through public and private keys, to a certain extent protecting users’ privacy. Bitcoin transactions are not restricted by geographical location. As long as there is a network connection, anyone can buy, sell, and transfer Bitcoin globally, breaking the geographical restrictions of the traditional financial system and achieving global financial transactions.

3. Analysis of the current situation of Bitcoin’s decline

3.1 Recent Bitcoin Price Trends

In order to provide a clear picture of the recent Bitcoin price action, we collected the daily closing price data of Bitcoin from January 1, 2024 to December 31, 2024, and created a line chart. It is clear from the chart that the price of Bitcoin as a whole will show a complex situation of first rising, then declining and then rebounding in 2024.

On January 1, 2024, the opening price of Bitcoin was $42,280.24. Subsequently, from January to April, Bitcoin’s price continued the upward trend from the end of 2023, rising all the way. On February 14, the price of Bitcoin broke through the $60,000 mark, reaching $62,155.18, with a gain of over 47% since the beginning of the year. This increase was mainly due to factors such as the approval of a Bitcoin ETF by the U.S. Securities and Exchange Commission (SEC), attracting a large influx of funds into the market, and market optimism towards cryptocurrencies.

However, starting from mid-April, the price of Bitcoin entered a period of adjustment, initiating a downward trend. On April 16, the price of Bitcoin reached a temporary high of $63,844.56 before starting to fall back. From May to July, the price of Bitcoin experienced increased volatility, with significant declines and rebounds occurring multiple times. On July 16, the price of Bitcoin dropped below $60,000, hitting a low of $57,855.33, a decrease of over 9% from the mid-April high. The reasons for the decline in Bitcoin price during this period are complex, including profit-taking by some investors, market concerns about cryptocurrency regulations, and uncertainties in the macroeconomic environment.

From late July to September, after a period of consolidation, the price of Bitcoin once again experienced a decline. On September 2, the price of Bitcoin fell below $50,000, hitting a low of $48,766.22, a drop of over 23% from the mid-July high. This decline was mainly impacted by increased volatility in global financial markets, changing expectations of the Federal Reserve’s monetary policy, and outflows of funds within the cryptocurrency market.

Entering October, the price of Bitcoin started to rebound. On October 31st, the price of Bitcoin broke through $60,000, reaching $61,344.56. From November to December, the price of Bitcoin continued to rise. On December 31st, the price of Bitcoin closed around $100,000, an increase of over 105% from the low point in early September. The main driving force behind this rebound in Bitcoin price during this period comes from the increased demand for cryptocurrencies in the market, continued buying from institutional investors, and the continuous inflow of Bitcoin spot ETFs.

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3.2 compared with historical decline situations

To gain a more comprehensive understanding of the characteristics and position of this Bitcoin price drop, we will compare it with the significant price drops in Bitcoin history.

In terms of the decline, this time the Bitcoin price has dropped by 23.62%, which is relatively small compared to several major declines in history, such as 93.75% in 2011, 82.31% in 2013, 83.82% in 2017-2018, and 76.06% in 2021-2022. This indicates that the current decline has not yet reached the extreme levels in history in terms of magnitude, and the market adjustment is relatively moderate.

In terms of duration, this decline lasted for 153 days, which is similar to the duration of the declines in 2011 and 2013, but significantly shorter than the 547 days from 2014 to 2015 and the 395 days from 2021 to 2022. This indicates that the time period of this price decline is relatively short, and the market may have completed the adjustment more quickly.

From the main reasons, historically, the decline in Bitcoin prices is often dominated by a single major event or factor, such as exchange hacking incidents, bankruptcy events, significant changes in regulatory policies, etc. This decline, however, is the result of multiple factors working together, including investor behavior (profit taking), expectations of regulatory policies, macroeconomic environment, reflecting that in the development process of the Bitcoin market, the factors influencing its price are more diversified and complex.

Overall, the decline in Bitcoin prices this time, compared with historical declines, is relatively small in terms of magnitude and relatively short in duration. However, the complexity and diversity of market factors reflected behind it are worth the close attention of investors and market participants.

4. Investigating the reasons for the decline of Bitcoin

4.1 Macroeconomic Factors

4.1.1 Federal Reserve policy adjustment

As one of the most influential central banks in the world, the Federal Reserve’s monetary policy adjustments have far-reaching implications for the global financial markets, and the Bitcoin market also finds it difficult to stand alone. In 2024, the Federal Reserve’s monetary policy presents a complex and changeable trend, significantly impacting market liquidity and Bitcoin prices.

In terms of interest rate adjustments, in the first half of 2024, the Federal Reserve maintained a relatively stable interest rate policy, but the market’s expectations for the future interest rate trajectory of the Federal Reserve underwent multiple changes. From January to March 2024, the market generally expected the Federal Reserve to possibly start cutting interest rates in the second half of the year to address the pressure of slowing economic growth. This expectation of rate cuts led to an increase in market liquidity expectations, with investors pouring money into risky assets in pursuit of higher returns. Bitcoin, as a high-risk, high-return asset, attracted a large inflow of funds, driving up the price of Bitcoin. For example, in February 2024, the price of Bitcoin broke through the $60,000 mark, with one significant reason being the market’s enhanced expectations of a Fed rate cut.

In terms of quantitative easing, although the Fed did not implement quantitative easing on a large scale in 2024 as it did in 2020-2021, the market’s expectations for the Fed’s future implementation of quantitative easing policy are constantly changing. Quantitative easing policy will increase market liquidity, reduce the cost of funds, and thereby drive up asset prices. As an emerging asset, Bitcoin is often favored by investors in the environment of quantitative easing policy. When the market expects the Fed to implement quantitative easing policy, the price of Bitcoin usually rises; conversely, when the market expects the possibility of quantitative easing policy withdrawal, the price of Bitcoin will fall.

4.1.2 Changes in the global economic situation

The changes in the global economic situation have indirectly but significantly influenced the price of Bitcoin. In 2024, global economic growth faces many challenges and uncertainties, these factors affect investors’ risk preferences and capital flows, thereby affecting the price of Bitcoin.

In terms of economic growth, global economic growth in 2024 presents a differentiated trend. The U.S. economy maintained relatively stable growth in the first half of 2024, but faced some pressure in the second half, such as a decline in manufacturing data and a decrease in consumer confidence index. The European economy has been in a weak growth state throughout 2024, affected by factors such as high inflation, energy crisis, and geopolitical issues, with economic growth slowing down in several European countries, and even showing signs of recession. Emerging economies also face varying challenges in 2024, with some countries experiencing significant difficulties in economic growth due to external debt pressure, currency devaluation, and trade protectionism.

The uncertainty of global economic growth has led to a decrease in investors’ risk appetite, and they are more inclined to invest in relatively safe assets such as gold and government bonds. Bitcoin, as a high-risk asset, has relatively decreased attractiveness in an environment of uncertain economic growth. Funds are starting to flow out of the Bitcoin market, leading to a decline in Bitcoin prices. For example, in September 2024, due to growing concerns about the slowing global economic growth, investors began selling off risky assets such as Bitcoin, causing the price of Bitcoin to fall below $50,000, dropping to a low of $48,766.22.

In terms of inflation, the global inflation level in 2024 remains high, although the inflation data in some countries have fallen, inflation pressure still exists. High inflation can lead to currency depreciation, reducing investors’ real income. Bitcoin, as an asset with certain anti-inflation properties, theoretically should be favored by investors in an inflationary environment. However, the reality is not so simple. Due to the high volatility and uncertainty of the Bitcoin market, investors, when choosing to invest in Bitcoin, will not only consider its anti-inflation properties but also other factors such as market liquidity, regulatory policies, etc.

4.2 Industry-specific factors

4.2.1 Regulatory Policy Changes

Regulatory policies on Bitcoin have always been one of the important factors affecting the Bitcoin market in various countries. In 2024, there have been new changes in the regulatory policies on Bitcoin in multiple countries and regions globally, which have directly impacted the Bitcoin market.

As the world’s largest financial market, the regulatory policy of the United States on bitcoin has attracted much attention. In 2024, the U.S. Securities and Exchange Commission (SEC) will take a more stringent approach to the regulation of the cryptocurrency market. In March 2024, the SEC launched an investigation into a number of Bitcoin trading platforms, alleging irregularities and fraud on these platforms. The news sparked panic in the market, with investors selling off bitcoin in droves, fearing for the safety and legitimacy of bitcoin trading platforms, causing the price of bitcoin to fall sharply. During the survey period, the price of Bitcoin fell from around $55,000 in March to around $50,000 in April, a drop of more than 9%.

4.3 Market Factors

4.3.1 Investor Sentiment and Behavior

Investor sentiment and behavior play a crucial role in the fluctuation of Bitcoin prices. In 2024, the investor sentiment and behavior in the Bitcoin market exhibited complex and varied characteristics, which had a significant impact on the price decline.

Market panic is an important factor leading to the decline in the price of Bitcoin. During the Bitcoin price decline in 2024, market panic continued to spread. When the price of Bitcoin begins to show a downward trend, investors often become concerned about the market outlook, fearing that the value of their assets will further shrink. This kind of concern can trigger investors’ panic selling behavior, leading to a significant increase in the supply in the Bitcoin market. For example, when the price of Bitcoin fell below $60,000 in July 2024, market panic quickly intensified, with many investors selling off their Bitcoin holdings, causing a sharp drop in the price of Bitcoin in a short period of time.

4.3.2 Changes in Market Supply and Demand Relationship

Market supply and demand is one of the fundamental factors determining the price of Bitcoin. In 2024, there have been some changes in the market supply and demand of Bitcoin, which have had a significant impact on its price decline.

In terms of Bitcoin mining output, although the total amount of Bitcoin is limited to 21 million, the speed and quantity of mining output will still affect the market supply. In 2024, the difficulty of Bitcoin mining has increased, leading to a slowdown in the production speed of new Bitcoins. The increase in mining difficulty means that miners need to invest more computing resources and energy to mine Bitcoin, putting cost pressure on some small miners, even causing them to exit the mining market. The decrease in mining output has reduced the market supply of Bitcoin to some extent. However, due to the complexity of the Bitcoin market, the reduction in supply has not prevented the price of Bitcoin from falling, indicating that changes in market demand play a more crucial role in price declines.

4.4 Major Events Impact

4.4.1 Bitcoin-related Events

Events related to Bitcoin have directly and significantly impacted market confidence and price trends. In 2024, there were several events that had a significant impact on the Bitcoin market, with hacker attacks and exchange failures being particularly prominent.

In May 2024, a well-known Bitcoin trading platform suffered a severe hacker attack. Hackers infiltrated the platform’s servers through technical means and stole a large amount of users’ Bitcoin assets. According to statistics, the attack resulted in the theft of over 100,000 Bitcoins, worth hundreds of millions of dollars. This event caused a major stir in the market, leading users to have significant doubts about the security of the trading platform. Many took measures to protect their assets, including transferring Bitcoins to other platforms or wallets, and even directly selling them. Market confidence was severely shaken, and the price of Bitcoin consequently experienced a significant decline. Within a week after the attack, the price of Bitcoin dropped from around $58,000 to around $53,000, a decrease of over 8%.

4.4.2 Other Financial Market Events

The fluctuations in other financial markets have a significant spillover effect on the Bitcoin market, with the fluctuations in the stock market and gold market in 2024 having an important impact on Bitcoin prices.

In 2024, global stock markets experienced multiple sharp fluctuations. In April 2024, the US stock market saw a significant decline, with the Dow Jones Industrial Average dropping over 5% in a week. The reasons for the stock market decline mainly include concerns about slowing global economic growth, lower-than-expected corporate profits, and geopolitical risks. The market downturn triggered panic among investors, who sought safe-haven assets, causing funds to flow out of risk asset markets. As a risk asset, Bitcoin was also affected by the stock market decline. To reduce risk, investors decreased their investment in Bitcoin and moved funds to relatively safe assets such as bonds and gold. This led to a decrease in demand in the Bitcoin market and a price decline. During the stock market decline in April, the price of Bitcoin dropped from around $55,000 to around $52,000, showing a certain correlation with the stock market trend.

5. Bitcoin Decline Impact Analysis

5.1 Impact on the cryptocurrency market

As the leader of the cryptocurrency market, Bitcoin’s price decline has triggered a chain reaction in the entire market, leading to the spread of market panic, accelerated outflow of funds, and a coordinated decline in prices of other cryptocurrencies.

The fall in the price of Bitcoin has triggered a spread of market panic. Due to Bitcoin’s dominant position in the cryptocurrency market, its price trend is often seen as a barometer for the market. When the price of Bitcoin experiences a significant decline, investors’ confidence in the entire cryptocurrency market is severely shaken, and panic quickly spreads in the market. This panic has led investors to sell off their cryptocurrency assets to avoid risks, further exacerbating market turmoil. Under the impact of the decline in Bitcoin prices, investors in many small cryptocurrency projects are worried that their investments will also suffer losses, and have chosen to leave the market, resulting in a sharp drop in the prices of these projects, and even some projects facing the risk of a funding chain rupture.

5.2 Impact on Investors

The drop in Bitcoin prices has had multiple impacts on investors, including asset shrinkage, adjustment of investment strategies, and the risk of liquidation.

The drop in the price of Bitcoin has led to a significant shrinkage of investors’ assets. Many investors have poured a large amount of funds into the Bitcoin market, hoping to gain high returns. However, the decline in the price of Bitcoin has rapidly devalued their assets. Some investors who bought at the high price of Bitcoin have seen their assets shrink by more than 50%. For example, an investor bought $1 million worth of Bitcoin in February 2024 when the price was $60,000 per Bitcoin. When the price of Bitcoin dropped to $48,766.22 in September, the value of their assets was only about $812,800, resulting in a loss of nearly $187,200. The asset shrinkage has not only brought economic losses to investors but also caused significant psychological pressure, leaving many investors in anxiety and panic.

Six, Market Response Strategies

6.1 Investor Strategy

In the market environment where the price of Bitcoin is falling, investors need to adopt a series of reasonable strategies to deal with risks and protect their assets.

Diversification is an important means to reduce risk. Investors should not concentrate all funds in Bitcoin, but spread assets across various asset classes, including traditional financial assets such as stocks, bonds, gold, as well as other promising cryptocurrencies. Through diversification, when the price of Bitcoin falls, other assets may remain stable or rise, balancing the overall risk of the portfolio and reducing losses from price fluctuations of a single asset. Investors can allocate a portion of funds to large-cap stocks, which typically have strong stability and risk resistance; at the same time, allocate a certain proportion to bonds, as bond returns are relatively stable and can provide some protection during market fluctuations; gold, as a traditional safe-haven asset, often acts as a hedge during periods of economic instability and should also be included in the investment portfolio. In the cryptocurrency sector, besides Bitcoin, attention can be given to cryptocurrencies such as Ethereum, Litecoin, which have different technical characteristics and use cases, further diversifying risk.

Controlling positions is one of the key strategies for investors to cope with the decline of bitcoin. Investors should reasonably determine the proportion of bitcoin in their portfolio based on their own risk tolerance and investment goals. Avoid over-concentration of positions to prevent serious asset losses due to a sharp drop in the price of Bitcoin. Generally speaking, for investors with a low risk tolerance, the proportion of Bitcoin positions can be controlled at about 10% - 20%; For investors with a high risk tolerance, it is not advisable to account for more than 50% of the Bitcoin position. Investors should also pay close attention to market dynamics and adjust their positions in a timely manner according to changes in market conditions. When market uncertainty increases and the risk of Bitcoin price falling is high, you can appropriately reduce your position; And when there is a clear upward trend in the market, you can consider increasing your position moderately.

Setting a stop-loss point is an important line of defense for investors to protect their assets. When investing in Bitcoin, investors should set a reasonable stop-loss level in advance. Once the price of Bitcoin falls to the stop-loss point, they should sell decisively to avoid further losses. The setting of the stop-loss point should be determined based on the investor’s risk tolerance and investment strategy. A common method is to set the stop-loss point based on the fluctuation range of Bitcoin’s price, for example, triggering the stop-loss when the price of Bitcoin falls by 10% - 15%. Investors can also combine technical analysis to set the stop-loss point based on the support and resistance levels of Bitcoin’s price. If the price of Bitcoin falls below a critical support level, it should be stopped in time. Setting a stop-loss point can not only help investors control losses but also avoid making incorrect investment decisions due to emotional fluctuations. When the price of Bitcoin falls, investors often fall into panic and hesitation, making it easy to act irrationally. The existence of a stop-loss point allows investors to operate according to pre-set rules, avoiding blind follow-ups and emotional trading.

7. Bitcoin Future Trend Prediction

7.1 Short-term Trend Prediction

In the short term, the price trend of Bitcoin will be influenced by a variety of factors, presenting a more complex fluctuating trend. It is expected that in the next 3-6 months, the price of Bitcoin may fluctuate within the range of $80,000 - $120,000.

From a macroeconomic perspective, the Federal Reserve’s monetary policy direction remains a key factor affecting the price of Bitcoin. If the Federal Reserve maintains interest rates stable or further cuts in the coming months, market liquidity will increase, providing some support for Bitcoin prices. Expectations of rate cuts will lead investors to seek higher-yielding assets, and Bitcoin as an asset with high potential returns may attract more capital inflows, driving prices up. Conversely, if the Federal Reserve raises interest rates or sends hawkish signals, market liquidity will tighten, and Bitcoin prices may face downward pressure. Raising interest rates will lead funds back to traditional financial markets, reducing demand for risk assets such as Bitcoin, thereby causing Bitcoin prices to fall.

Changes in regulatory policies will also have a significant impact on the price of Bitcoin in the short term. Regulatory attitudes towards Bitcoin trading platforms and related financial products by regulatory agencies such as the U.S. Securities and Exchange Commission (SEC) will directly affect market confidence. If regulatory agencies implement stricter regulatory policies, restricting the trading and circulation of Bitcoin, panic may arise in the market, with investors selling off Bitcoin, leading to price declines. Conversely, if regulatory agencies can clarify the legal status of Bitcoin and provide a clearer regulatory framework, it will help enhance market confidence and stabilize the price of Bitcoin.

Market sentiment and investor behavior are also important factors in the short-term volatility of Bitcoin prices. Short-term fluctuations in Bitcoin prices are often driven by market sentiment, such as changes in the fear and greed index. When market sentiment is optimistic and investor greed is high, Bitcoin prices may rise rapidly; while when market sentiment is pessimistic and investor fear spreads, Bitcoin prices may plummet significantly. The recent rise in Bitcoin prices may trigger some investors to take profits, leading to a price correction; but if there are new positive news in the market, such as more institutional investors entering, the expansion of Bitcoin application scenarios, it may attract more investors to buy in again, pushing prices higher.

Prediction of BTC price based on AI large model, not investment advice!

Conclusion

For investors, they should fully understand the high risk and uncertainty of the Bitcoin market, avoid blindly following the investment trends. Before investing, evaluate their own risk tolerance and develop a reasonable investment plan. During the investment process, strictly adhere to strategies such as diversification, position control, and setting stop-loss points to reduce investment risks. At the same time, pay close attention to macroeconomic conditions, regulatory policy changes, and market dynamics, and adjust investment strategies promptly.