Bitcoin [BTC] has had a tough start to 2021, with its price facing a continuous downward trend. Analysts have been warning of further price drops, saying that its current market level is not sustainable in the long run. This article looks at possible causes behind the price dips, including an oversupply of Bitcoin and a lack of buying pressure. It also considers the impacts to investors, with researchers projecting Bitcoin to be overvalued when compared to other assets. Several factors are impacting Bitcoin’s price movement. One of the key contributing factors is an excessive influx of Bitcoin supply. Bitcoin’s supply rate, which is approximately 5.25 BTC minted every 10 minutes, is relatively high when compared to other digital assets. This creates a situation in which the market is already oversupplied with Bitcoin, which in turn, saturates the demand with no further inspiring or encouraging users to enter the market.
The lack of buying pressure from institutional investors has also been cited as a contributing factor to the steady drop in Bitcoin’s price. These large investors, who would likely be more willing and able to absorb short-term volatility, have not been participating in the market as much as before. This lack of demand leads to the gradual decrease in Bitcoin’s value and exacerbates the situation.
Furthermore, there are concerns that Bitcoin is being overvalued due to its recent price spike late last year. Analysts predict that the price levels had inflated Bitcoin’s value beyond what they believe it is actually worth, which could lead to a bearish correction as buyers step back and take profits.
Investors should keep an eye on potential developments in the cryptocurrency industry over the coming months and make decisions on their investment accordingly. Last year’s rally has been a rollercoaster ride and the current market uncertainty has made Bitcoin’s future very unclear. Knowing the factors at play and the risks involved will help investors best decide how to proceed going forward.