Bitcoin and other cryptocurrencies are undergoing a downturn with the stock market and other investments. This cryptocurrency bear market is being referred to as a “crypto winter” by industry professionals.
The collapse of the crypto market implies that coins are being sold at very cheap prices. Those adopting the Warren Buffet school of thought of ‘being greedy when others are fearful’ (and vice versa), may deem this as the perfect opportunity to take a crypto casino style gamble by buying up the low priced currency.
The fall of cryptocurrencies was caused by investor distrust. Investors’ panic selling has caused prices to fall. Terra, a stablecoin, started it all. Stablecoins are cryptocurrency that strive for fixed values and are frequently anchored to the US dollar. Terra’s value was kept constant, at least initially, thanks to an algorithm. The coin’s value fell last week when it was “unpegged” from the dollar. According to CoinMarketCap, it is currently worth less than one US penny. Though the cause of its failure is being debated, the impact on the rest of the market has been significant.
When many cryptocurrency investors panicked and started selling their holdings, the value of more well-known coins was impacted. The value of one Bitcoin, the most valuable cryptocurrency, has fallen from £48,000 in December last year to around £24,000 today. Ethereum, the second-largest coin and the foundation for the majority of NFTs, lost a fifth of its value in a single day. Since November, the price of one Etherium has dropped from around £3,400 to more than £1,600.
Cryptocurrency values soared to all-time highs in 2021, propelled by record-low interest rates, an expanding pool of retail investors, and more institutional involvement. BTC reached an all-time high of $68,789 in November 2021. Etherium (ETH), the second-largest cryptocurrency, broke above its previous record high level to peak at $4,891 in November 2021, and the rest of the cryptocurrency market followed suit. The year 2022 has proven to be a different tale. The US and worldwide central banks have been forced to curtail cheap liquidity due to high inflation. The US Federal Reserve (Fed) has started a cycle of rapid monetary tightening after raising interest rates by 25 basis points (bps) in April, 50 bps in May, and 75 bps in June.
The most prosperous investors typically choose a long-term strategy, weathering market ups and downs. By that reasoning, it would be foolish to “cash out” right away. However, this guidance was initially intended for the stock market; cryptocurrency is considerably more recent, and it has no established long-term prospects. Although Bitcoin has recovered from falls in the past, it is difficult to predict what will happen next. It could possibly continue to decline or remain at this level for a considerable amount of time. Picking a value for the cryptocurrencies you own and promptly selling them if they fall below it is one option. The ability to set up a “stop loss” to automatically sell on many trading platforms helps to remove some of the emotion from the choice. Think about how your lifestyle would be affected by the loss or whether you are investing money you could always afford to lose.
Being greedy when other people are scared is a quirky but seductive technique for true believers who are confident that the coins they have invested in are good to hold for the long term. This includes taking advantage of the current drop in coin values to buy more coins.
“Keep your powder dry” may appear reasonable to anyone who bought coins at a lower cost and has since seen a significant increase in value. This entails moving part of or all of your winnings to more secure locations while you wait for fresh investing possibilities in the cryptocurrency market. Those with low risk tolerance might discover that it’s a good idea to spend more time getting to know the coins in their portfolio right now. That would make it easier to determine what would produce marginal gains, what is predicted to decline even further, and whether it is appropriate to purchase additional Bitcoin at this time given that it is getting close to its next “halving.”
Cryptocurrency markets have previously experienced significant drops in value, but they have always recovered given enough time. When looking at longer-term price charts in a linear fashion, it can appear far more unexpected than it is, but Bitcoin’s growth on a logarithmic trend is still visible. Given the current stage of the Bitcoin halvening cycle, current market volatility should come as no surprise; one can reasonably expect the upcoming halvening in 2024 to lead to greater bullish momentum moving forward.
Remember, this article only provides an opinion. Always do your own research when investing. As an investor, it’s crucial to know how much of your money you could lose and what circumstances could cause this to occur. If you are uncomfortable with the risks of the investment, remember there are always lower-risk alternatives.
