As the crypto market battles to find upward momentum, Bitcoin's price remains near $29,000 recently. The most popular cryptocurrency has...
As the crypto market battles to find upward momentum, Bitcoin's price remains near $29,000 recently. The most popular cryptocurrency has been losing ground in recent weeks, plummeting as much as 20% last week.
Experts say the crypto market has been more mirroring the stock market, which has been on a downward trend recently, which, when combined with more widespread use and the recent price slumps, makes it even more linked with macroeconomic concerns. According to CoinMarketCap, Ethereum and the rest of the cryptocurrencies listed on major crypto exchanges like Coinbase, Binance, and KuCoin, has followed in the footsteps of Bitcoin.
That means that variables that affect stock markets in the past, such as growing inflation, geopolitical crises, and concerns about the Fed's tightening monetary policy, are finally catching up with the crypto market as well, triggering a mass movement of assets from volatile investment classes like cryptos, to more stable asset classes like gold.
On May 4, the Fed raised interest rates for the first time in 22 years, in a bid to combat inflation, which slowed to 8.3% in April, according to the most recent inflation report.
Some experts feel that TerraUSD (UST), one of the most popular stablecoins, contributed to Bitcoin's recent meltdown. UST was supposed to be pegged to the dollar, but it plummeted to as low as 12 cents before collapsing in a pseudo-bank run as anxious investors sold off their tokens. The Terra blockchain has now been decommissioned.
After the Fed's decision on May 4, Bitcoin temporarily climbed above $40,000, but the gains were short-lived. For several weeks, Bitcoin had been trading in a narrow range, generally between $26,000 and $31,000.
Since December 25, 2021, Bitcoin hasn't gone above $50,000. Despite the ups and downs, Bitcoin has remained over $34,000, the lowest point in the preceding six months. Bitcoin has lost 40% of its value after hitting an all-time high around $68,000 on Nov. 10, owing to rising inflation, a sluggish employment market, and the Fed's continuous signs that it will begin winding down aggressive measures to boost the economy.
So far this week, Bitcoin has traded between $26,000 and $32,000. Here's how Bitcoin's current price compares to its recent daily high:
Despite decreasing dramatically from its recent all-time high, many experts believe Bitcoin's price will eventually soar above $100,000 — calling it a matter of when, not if. Shortly after Bitcoin's most recent all-time high in November, Ethereum's price surpassed $4,850, setting a new all-time high. Following the recent high, Ethereum has seen similar volatility.
Bitcoin surpassed $60,000 for the first time in 2021 in April, and the price movement since then has highlighted the cryptocurrency's volatility at a time when an increasing number of individuals are keen in getting in on the action. Bitcoin swung rapidly up and down between a low point in July that dropped it below $30,000 and its most recent high point in November. The future of cryptocurrencies will almost certainly entail a lot more volatility, according to experts.
What Does This Drop in Cryptocurrency Prices Mean for Crypto Investors?
Price oscillations are to be expected for individuals who invest in crypto for the long term utilizing a buy-and-hold approach. According to Humphrey Yang, the personal finance expert behind Humphrey Talks, big dips are nothing to be concerned about, and he avoids reviewing his own accounts during dangerous market dips.
Cryptocurrency investments should make up less than 5% of your whole portfolio, according to experts. According to Bill Noble, chief technical analyst at Token Metrics, a cryptocurrency analytics platform, if you've done that, don't worry about the swings since they'll keep happening.
"Volatility is as old as the hills, and it isn't going away," says Noble. "You're going to have to deal with it."
Yang advocates employing the same method that works for all long-term investments: set it and forget it, as long as your crypto investments don't get in the way of your other financial goals and you've only put in what you're ultimately willing to lose.
You may have too much depending on your crypto investments if this type of severe drop upsets you. Only invest what you're willing to lose. Even if the downturn has caused you to reconsider your crypto holdings, the same advice applies: don't act rashly or change your approach too hastily. Consider what you'd be more comfortable with in the future, such as dedicating less to crypto or diversifying through crypto-related equities and blockchain funds rather than buying crypto directly (though you should still expect volatility when cryptocurrency markets fluctuate).
"Don't worry about it. That's the best you can hope for. If you let your emotions to get the best of you, you may sell at the wrong time and make the incorrect judgment," Yang warns.
What if You Haven't Invested Yet?
Although Yang's approach to crypto is similar to his approach to regular stock investing, other analysts believe bitcoin is too distinct from traditional investments to draw any historical analogies. That's why Savvy Girl Money's A'Shira Nelson is staying away.
Because "I can see history on that," Nelson prefers to invest in low-cost index funds. She is afraid of these wild swings because of the newness of bitcoin and the absence of trackable data.
Potential investors intending to purchase the dip should be aware that volatility is to be expected, and they should be prepared for it in the future. Prepare to lose much more money if you invest now, when prices are still reasonably low. Put in only what you're willing to lose after you've taken care of other financial objectives like emergency savings and regular retirement accounts.
Who or What's Causing Bitcoin's Recent Drop?
Many investors consider price swings in Bitcoin to be part of the game, but "volatility is difficult for individual investors to deal with," according to Noble. He, too, warns against selling too soon.
Surging inflation, persistent uncertainty over the country's lingering struggle with COVID-19, and new regulatory moves by the US government, including Biden's recent executive order, have all contributed to recent price fluctuations. It doesn't take much to cause price swings in a new and unproven market like cryptocurrencies. According to a research by Glassnode Insights, a blockchain analysis firm, new short-term investors who are selling their holdings in response to the latest decrease may be adding to the reduction in Bitcoin's value.
While swings are to be expected, Noble says some of the recent significant losses have startled him. "I was hoping that as the industry matured, these incidents would become less frequent and serious." "Woah, was I wrong," he admits.
Noble theorizes that some of the decreases are due to a combination of events, including excitement for low-quality coins, harsh remarks from Elon Musk, and China's recent crackdown on crypto services. According to Noble, this combination of circumstances has the potential to make sell-offs "all the more violent."
He compares the collapse to the 1987 stock market crisis, which took months to recover from. However, because cryptocurrency moves far faster today than stocks did in the 1980s, Noble believes we will see a faster recovery.
"Don't freak out and puke," Noble advises. "You can try to handle the volatility if you keep your positions small."
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