Bitcoin price fell below $41,000 on Saturday, extending the slide that began on Wednesday afternoon. Bitcoin has been hovering around $42,000 in recent days.
The sharp drop this week followed a disappointing December jobs report and the release of the minutes of the Federal Reserve’s December meeting, which signaled an end to measures to support what he described as a steadily improving economy. CoinDesk reports that there was also a massive sell-off in bitcoin futures.
After hitting nearly $52,000 on December 27, the value of Bitcoin ranged between $40,000 and $50,000 in the days that followed. It’s been between $40,000 and $48,000 so far this week.
Despite the recent pullback, Bitcoin closed 2021 relatively higher, with a strong November and early December giving way to the recent downtrend. After starting 2021 in the $30K range, Bitcoin surged over the year and reached its current all-time high when it topped $68K on November 10.
The price volatility and pause last month comes amid fresh economic uncertainty over the Omicron COVID-19 variant, fresh statements from Federal Reserve Chairman Jerome Powell about the health of the economy, and ongoing comments from US officials such as SEC Chairman Gary Gensler about cryptocurrency regulation.
Despite pulling back from its most recent all-time price, the current bitcoin price is still a significant rally from the low-$40,000 range seen in September 2021 and throughout the year before. Many experts still expect the price of Bitcoin to rise above $100,000 at some point – describing it as a matter of when, not if.
Shortly after Bitcoin’s most recent all-time rally, Ethereum hit an all-time high when its price crossed $4,850. Ethereum also experienced a clear ups and downs after the recent rally.
Even with its recent and usual ups and downs, bitcoin is much higher than it was when it dropped below $30K in July.
Bitcoin first reached an all-time high of over $60,000 in April, and the ups and downs since then have put the spotlight on the cryptocurrency’s volatility at a time when more and more people are becoming interested in taking part in the event. In the weeks between the latest drop in July and its highest point in recent weeks, bitcoin has been steadily rising. The future of the cryptocurrency is sure to have a lot of volatility, so these volatility and propensity are on par with the cycle.
We’ve spoken to investment experts and financial advisors who advise against dumping most of your portfolio into the asset class for this very reason. They work with clients to ensure that volatile crypto investments do not get in the way of other financial priorities, such as saving an emergency fund and paying off high-interest debt.
“You have a high chance of losing it all, but there is little chance of winning it big,” says Nate Nieri, CFP with Modern Money Management in San Diego, California. “Don’t gamble with an amount that will burden your family or prevent you from achieving your goals” if you lose everything, he says.
How does this latest crash compare to previous crashes, or even regular stock market crashes — and what does that mean for investors?
What does this price drop mean for cryptocurrency investors?
For those who invest in cryptocurrencies for the long term using the buy and hold strategy, fluctuations like this are to be expected. Big dips aren’t something to be overly concerned about, according to Humphrey Young, the personal financial expert behind Humphrey Talks, who says he avoids checking his investments during volatile market dips.
“I went through the 2017 cycle as well,” Yang says, referring to the 2017 “cryptocurrency crash” that saw many major cryptocurrencies, including bitcoin, lose significant value. “I know this stuff is very volatile, like some days it can go down 80%.”
Experts recommend keeping your cryptocurrency investments below 5% of your portfolio. If you did, you don’t have to worry about volatility, because it will continue to happen, according to Bill Noble, chief technical analyst at Token Metrics, a cryptocurrency analytics platform.
“The fluctuations are as old as the hills, and they’re not going anywhere,” says Noble. “It’s something you have to deal with.”
As long as your cryptocurrency investments don’t get in the way of your other financial goals and you only put in what you don’t agree to lose in the end, Yang recommends using the same strategy that works with all long-term investments: forget it.
If that kind of extreme drop bothers you, you may have a lot of riding on your crypto investments. You should only invest what you lose. But even if the drop makes you rethink crypto customizations, the same advice still stands – don’t act recklessly or flip your strategy too quickly. Reconsider what you might be more comfortable going forward, such as allocating less cryptocurrency in the future or diversifying through crypto-related stocks and blockchain funds rather than buying outright cryptocurrency (although you should still anticipate volatility when the markets are volatile). cryptocurrency).
“Don’t check it out. This is the best thing you can do. If you let your emotions get in too much, you might sell out at the wrong time, and make the wrong decision,” says Yang.
What if you are interested in cryptocurrency but haven’t invested yet?
Yang set it and forget it because his approach to crypto reflects his philosophy of investing in the traditional stock market, but some experts feel that cryptocurrency is too different from traditional investments to make any historical comparisons. That’s why A’Shira Nelson from Savvy Girl Money is staying away.
Nelson invests primarily in low-cost index funds because “I can see the history in that,” she says. The newness of the cryptocurrency and the lack of traceable data make it worry about these crazy fluctuations.
Potential investors looking to buy on the dip should understand that volatility is on par, and be prepared for this type of volatility in the future. Even if you invest now, at relatively low prices, be prepared for them to go down even more. Again, put only what you feel comfortable losing — after you’ve covered other financial priorities, like emergency savings and more traditional retirement funds.
What is behind the latest bitcoin drop?
Many investors see bitcoin’s price swings as part of the game, but “volatility is hard for individual investors to deal with,” Noble says. Like Yang, he warns against selling too quickly.
The recent price swings were followed by fresh uncertainty over the country’s ongoing battle with COVID-19, new regulatory actions by the US government, as well as new legislation related to cryptocurrency in the infrastructure bill. In a new and unproven industry like cryptocurrencies, it doesn’t take much to cause huge price swings. In general, new short-term investors selling their holdings in response to the recent drop in the value of Bitcoin may contribute to the decline in the value of Bitcoin, according to a report by Glassnode Insights, a blockchain analysis firm.
While volatility is expected, Noble says he was surprised by the fall earlier this year. “I thought the market was maturing and these things would be less frequent and intense. I was wrong, boy,” he says.
Some of the declines this year have been caused by a combination of factors, according to Noble theories, from excitement about low-quality coins, to negative feedback from Elon Musk, to China’s recent crackdown on crypto services. Noble says this combination of factors has the potential to make selling “more violent”.
The drop is similar to the 1987 stock market crash, from which markets took months to recover. But since cryptocurrencies are moving much faster today than stocks did in the 1980s, Noble says we may see a faster recovery.
“Don’t panic and vomit,” says Noble. “If you keep your positions small, you can try to tolerate fluctuations.”