If you’ve been following along with the markets lately, you might have noticed that crypto has been involved in what can only be described as a slow-motion car crash. So, with price levels squashed, is now a good time to buy Bitcoin?
We’re going to cover all the latest cryptocurrency market movements. I’ll explain to you what’s happening and also my thoughts on whether it’s time to invest in ‘digital gold’, or avoid it like the plague.
Keep reading for the full scoop or click on a link below to jump straight to a section…
- What is the Bitcoin price?
- Why has it gone down?
- Why are cryptos crashing?
- Is there any good news?
- Is it a good time to buy Bitcoin?
- What about other cryptos?
- Is there anything to be wary of?
At the moment, the price of a Bitcoin (BTC) is hovering around $20,000, roughly £16,000.
This is way off the not-too-distant highs of almost £50,000 ($67,000) we saw last November.
That’s an almighty drop. But, for anyone who’s been in crypto pre-pandemic, you’ll be aware that these kinds of giant price movements are par for the course.
When people tell you that cryptocurrency is volatile, this is what they’re talking about. Even knowing this, some people are still get a shock from such a huge price fluctuation.
The price of Bitcoin has plummeted for a handful of reasons. It’s impossible to say for sure with a hundred percent certainty what was the most important reason, but it’s a combination of:
- Investors looking to move away from riskier assets.
- High inflation and rising interest rates hurting tech stocks, spilling over into Bitcoin.
- Still no agreement on how to properly regulate Bitcoin.
- The end of Bitcoin’s 4 year cycle.
- Wider issues and worries in the crypto space.
Lately, there have been some major issues within the cryptocurrency market that have been dragging everyone else down.
Most problems aren’t directly linked to Bitcoin. But the world’s leading crypto still bleeds and suffers when there are other troubles in the space.
This is a shame because it can be bad projects giving Bitcoin a bad name, simply by association.
Here’s a quick rundown of the major factors why the cryptocurrency market has been crashing lately:
- Wider economic fears have led to mass layoffs within some of the biggest crypto firms such as Coinbase, Crypto.com, Gemini, and BlockFi (to name just a few).
- The failure of ‘stablecoin’ Terra UST de-pegging from the dollar and crashing.
- Major DeFi platform Celsius stopped customers from withdrawing funds.
- Surprisingly high recent inflation reading in the US leading to a bigger rate hike.
- General fears that many crypto-related companies and lending platforms have underlying liquidity issues.
This is a lot of bad news and not much to look forward to. Well, not anytime soon anyway. The only potential glimmers of hope are:
- Ethereum upgrade to Ether 2.0 ‘proof of stake’ in the summer.
- A proper Bitcoin ETF (exchange-traded fund) in the US.
But, what’s happened in the past is that when the whole crypto market is down, no one really cares about technical upgrades or positive events.
During a bull market, people latch on to every single sliver of positive news related to cryptocurrency. And then, use that to say that “this time it’s different” and the price will never crash again.
Yet, what we’re seeing now shows that sentiment can shift quickly and with force. When it does, any good news is drowned out.
Personally, I think it could be an excellent time to buy Bitcoin. But, only if cryptocurrency was something you wanted to invest in anyway. Or, if you bought in at a higher level.
Nothing has fundamentally changed with Bitcoin itself or its potential.
Many people invested over the last couple of years as the price was rising. Those investors are probably disappointed that it’s now back at the same level it was at the end of 2020.
Anyone who bought after December 2020 is likely sitting on a paper loss right now. But if you were one of the people who invested as a long-term play, the outlook hasn’t really changed.
Most of the time with any investment, the best way to make money is to do the opposite of what everyone else is doing. A useful tool I use to judge this for Bitcoin is the ‘fear and greed index’.
It’s a simple barometer that gauges public sentiment towards Bitcoin. Typically, when the index is towards ‘extreme fear’, it’s a good time to buy Bitcoin. And similarly, when it swings the other way towards ‘extreme greed’, this is often the best time to sell.
The tool isn’t perfect. But it’s a useful way to get a temperature on Bitcoin. It’s funny that people were clambering over each other to buy Bitcoin at over $60,000. Yet, now that the price has fallen by around 70%, investors are scared to touch it.
I don’t have the same level of confidence about other cryptocurrencies, with Ethereum being the exception.
The wider economic troubles we’re seeing, and a potential looming recession could end up wiping out plenty of crypto projects in a Tsunami fashion.
It seems like lots of crypto businesses and projects know how to operate in a bull market but appear to be useless at planning for a downturn or bear market.
This poor financial preparation and mass layoffs is worrying to see. And, if prices keep tumbling, some crypto firms and tokens may never recover.
Cryptocurrency in general is still largely unregulated and speculative.
On top of this, the technology has hardly any practical uses. So, there’s always the chance that cryptocurrencies could fail completely or be usurped by new tech.
I think that the long-term investment case for Bitcoin still holds but you need to be prepared for a bumpy few years. If you’re not willing to see your Bitcoin holdings fall further, I’d recommend steering clear.
But if you’re someone who’s happy to be patient. And, comfortable with the fact that you could lose some or all of your investment – choosing to buy Bitcoin during bear markets is how most people have made money.
In the Bitcoin cycles, we’re still seeing higher highs and lower lows. So as painful as it looks, it’s trending in the right direction.
There are plenty of issues cropping up right now with DeFi lending and crypto platforms. So, I’d be wary about where you’re holding your Bitcoin. It may be worthwhile spreading your holdings across a few accounts to be safe. Or ideally, hold it offline in ‘cold storage’.
Things look pretty scary right now. It’s very important to be careful throughout this period. But my view is that there are plenty of gains to be made for those willing to take calculated risks with a sprinkling of patience.
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This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.