Why Are the Prices of Bitcoin Going Down?
We live in a world with inflation at an all-time high. People are not sure if their stocks will retain their position, and investors have more or less lost their faith in the Federal Reserve when it comes to interest rates. One might be so inclined to believe that this is the ideal time to invest in Bitcoin. What could be a better time than this to do that?
You’d be surprised to find, if you don’t already know, that the most profitable digital currency has seen a drop of approximately 20%, and its price went down to $33,000 in January of 2022 alone. Pretty crazy, right? It is when only three months ago, the price of Bitcoin was somewhere around $69,000. That was Bitcoin’s all-time high.
Bitcoin Might Now Be a Risk-Asset
You might be wondering what risk assets are. They are investments you make that come with a significant amount of volatility during their journey in the market. This is not limited to just cryptocurrency but also applies to commodities, stocks, high-yielding bonds, and currencies. If you have invested in the before, know someone who has, or has done your research, you must understand that their prices never really stay the same in any market condition. You win some; you lose a lot. You lose some, and then you win a lot.
But why is this happening to Bitcoin right this moment? It’s because the narrative of the cryptocurrency market has shifted from risk-on to risk-off. Liquidity is not as fluid anymore as several banks have begun to cut back on excess stimulus after realizing that Covid-19 might just be winding down. People will need to return to work soon if they have not already. Metaverse is great and all, and it offers incredible opportunities, but it is improbable that we may all end up there tomorrow. Until that day comes, we all have our jobs to go to.
Individuals who have been trading Bitcoin are not new to a market like this. In 2017-2018, Bitcoin’s value fell more than 80%! Imagine if you had invested your whole life’s savings in a coin, and overnight it fell by that much. It can be gut wrenching, but that is true for any investment you make. However, you must keep in mind that this was long before significant corporations such as PayPal and Fidelity had invested millions and billions of dollars in the crypto world. You wouldn’t even have found your average investor investing back then. So, it’s safe to say that times were quite different from what they are now.
Bitcoin’s Rough Start to 2022
Despite the fall it took from its all-time high in 2021; Bitcoin rose approximately 70% by the year’s end. For any asset class out there, that’s an incredible rise back to the limelight, especially for one that lacks any tangible value, full-faith, or credit of a national economy supporting it.
While it was a comeback for sure, investors no longer appear to be in a mood to take high risks, especially investing in such a volatile currency that rises 70% one day and falls 80% the day after. But Bitcoin just didn’t become this way; it was like this always.
Volatile By Nature
We’re all aware of the tensions that currently surround Russia and Ukraine, but what some of us don’t know are the effects of this kind of tension on tradable asset classes. Bitcoin, in particular, is correlated to broad market movements and has less of a connection to equity markets. The difficulty with Bitcoin is that so far, it hasn’t shown much of a connection with anything in the market. Inflation is higher than it has been in over four decades, which means that people would naturally want to gravitate towards a currency that is not backed by the nation.
One might assume this would hike up the demand for Bitcoin, but Bitcoin is causing a lot of doubt in the investors’ minds when it should be doing the opposite. The truth of investing in something so volatile by nature is that one should be prepared to experience a 50% price drop if they expect a 50% price gain as well. That’s how investments work.
Is Bitcoin Worth The Investment?
Bitcoin was once a fun thing for tech-savvy first adopters, but as it grew in popularity, there was more and more information on how people could trade dollars for Bitcoin and then use Bitcoin to buy something else, such as a soda. Investing in Bitcoin is no longer as complicated as it once was, and people can go on cryptocurrency platforms like Coinbase, Binance, and more to trade it. Simply put, it has become accessible to people. Even though Bitcoin is at a low of $36,000, it won’t stay the same forever. Want some perspective? Well, Bitcoin was at $8,000 approximately two years ago. At some point, even though that point isn’t now, Bitcoin prices will rise again and rather significantly. That would certainly make it worth the investment.
If you invest in Bitcoin right now, you will get a chance to bank on its massive gains, which sometimes happen overnight. You can then sell the coin and enjoy your profit or continue trading if you like. With cryptocurrencies, the thrill never really goes away. It is important to note, however, that there is some level of risk associated with anything you do, whether it be big or small. Investing is something that you must do based on what your gut tells you. This gut feeling doesn’t grow overnight like the prices of Bitcoin; it grows with trial and error. You invest, lose some, try again, and invest smarter. Eventually, you’ll find that you have the gut feeling that helps you buy and sell crypto coins at the right time and enjoy the benefits.
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