'’Bitcoin is dead. The whole cryptocurrency market is crashing!’’, said a friend who’s not even interested in finance, let alone crypto.
Nothing travels faster than bad news. And it’s true - BTC price dropped approx. to $20,000 - a 70% drop in value since its $68,000 all-time high in November 2021. The rest of the market followed. You would have every right to think the boat is sinking.
Except this is not the first time BTC played dead when seeing a bear.
Yet, it’s unclear where the support line is - $18k, $14k, or even lower. One thing is certain - you can always count on crypto volatility. Bears and bulls always correct each other, and the sun (usually) rises again.
Nonetheless, don’t feel inadequate for doubting. Everything feels weird and uncertain these days. That is precisely why this article will go through potential reasons that caused the dip, your legitimate concerns about losing money, and a shy prognosis of what happens next.
The Reasons Why Bitcoin Dropped
When a crash like this happens on a crypto market, it always looks like a domino effect - except you’re not really sure which little brick caused the fall. There is a sudden sense of panic, followed by the selling of crypto assets that, in return, depreciate in value.
To understand this behavior, we need to understand two things - a) what causes the panic b) what maintains the panic.
Non-crypto reasons
Let’s start with the obvious - war in Ukraine, inflation (40-year high in the US), Federal Reserve raising interest rates by 0,75%, and upcoming recession in general. Nothing can thrive in these conditions, right?
It’s only normal that the crypto market reflects what’s going on in the world. Inflation seems to be the leading consequence of current global affairs and it kind of sums it all up nicely:
Money is losing value. We want more money. Money is losing value again.
At that point, it’s easy to see crypto as an unnecessary luxury and not as a possible way out. You cut your losses, set your priorities, and hope for the light at the end of this tunnel - who could blame you? You alone can’t control any market, let alone the crypto market, so abandoning posts might seem reasonable.
Traditional financial bodies will say crypto is bad because it’s uncertain. But what’s worse - uncertainty or a certain catastrophe? To say that we’re on a verge of another giant economic crisis would be a lie. We’re already deep into it.
Terra-Celsius-Ethereum Crisis
Even some of the strongest crypto believers are starting to lose faith. It started with the Terra controversy and then the Celsius bomb dropped. The outcome? A lot of people lost money and many will now lose their jobs. The industry failed itself. Was it all a fairytale? If a giant like Celsius can burst and leave everyone behind, what ‘mere mortals’ can expect?
There is another crucial variable in this equation - Ethereum’s difficulty bomb and The Merge. This event is tightly related to Celius' downfall, and here’s how.
Celsius bought a bunch of stETH tokens (product by Lido finance). This decision came with a terrible cost since stETH, though can be traded on exchanges, can’t be redeemed for real ETH for at least 6-12 months after the Merge.
It’s important to know that the ‘’detonation’’ of the difficulty that was scheduled for August is now delayed, though it threatened to annul the entire ecosystem leaving users without both PoW and PoS versions of Ethereum. The Merge had previously been delayed again, too.
Other crypto reasons
China’s latest ban on crypto doesn’t help either. And Elon Musk switched teams, he’s now one of the Bashers. When we include the rising mining issue, it’s clear how all this and more led to the lowest BTC price since December 2020.
‘Real-world’ reasons knocked down the Bitcoin price, but the crypto industry seems to be the one keeping it on the ground, for now. When enthusiasm leaves the crypto community, all charts turn red. Nevertheless, as easily as the price drops, it always surges back again.
In March 2020, though as a consequence of a black swan event, Bitcoin dropped to $3,000. Just 3 thousand dollars! Only a year and a half later, in November 2021, the BTC price was at an all-time high of $68,000. Whoever listened to ‘buy the dip’ back then, found himself extremely lucky.
Yet, the skepticism remains. It’s almost impossible to see something as worthy when everyone says it’s doomed. Could this really be it for BTC?
To Invest or Not to Invest: Now Is the Question
Common sense says YES if it doesn’t endanger your or your family’s basic needs. Might not be the wisest to empty your emergency funds either. But in any other case, if you do have anything to spare, crypto is always a good investment.
Keep in mind that the bear market could last for a while, so don’t be discouraged if bitcoin goes even lower than what you bought it for. Because when it goes up again, and it will go up again, hodlers will be the ones saying ‘told you so’.
It’s a definite yes to investing in crypto BUT
a) don’t overspend if you don’t have the means
b) don’t put all your eggs into one basket.
Hedging mechanisms
There are other ways of investing in crypto besides e.g. directly buying bitcoin. While traditional cryptocurrencies are losing value, stablecoins are thriving. They can’t surge in price simply because their entire point is to be stable in value. This, however, doesn’t mean you can’t take advantage of the current market situation.
A lot of people are swapping BTC but they’re not strictly existing crypto. They are protecting their crypto assets by exchanging them for USDC or other available fiat-pegged stablecoins.
Demand for stablecoins is currently high, so e.g. creating a USDC liquidity pool on a decentralized exchange can give you significant ROI. For example, Dexvers liquidity pools are offering an impressive 200% APY and therefore putting the investment risks to a minimum.
If you own real estate, you can use that as your backbone in crypto investments. Any real property can be tokenized or transformed into crypto assets via mediums such as Dexvers’ RAILs program.
What’s Next for Bitcoin
The million-dollar question is will Bitcoin survive its first recession? In 2008, the global economy collapsed. As a response to such a tumultuous event, Satoshi Nakamoto created Bitcoin in 2009.
"The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust," said Satoshi Nakamoto back then.
A Financial Times survey states that 70% of economists believe the recession in the US is inevitable. To brush up your knowledge, a recession happens when an economy’s GDP (gross domestic product) turns negative, followed by rising unemployment and loss of purchasing power.
The honest answer to this question would be that nothing is certain. Yes, the crypto market’s second name is ‘volatile’ and prices have been going up and down since 2009, that’s not new.
The potential issue is whether BTC and crypto will be equally susceptible to external shocks as any other industry. However, bitcoin’s history doesn’t lie - bears simply can’t stay forever! Just a dash of optimism could increase the demand and, finding its support, the BTC price can start surging again.
The key takeaway would be to invest in crypto but invest smartly. Do your own research (DYOR), ask for a second opinion, and never invest more than what you have.
Both crypto and the global economy will come around, one sooner than the other. It’s not the end of the world, there are still plenty of options, and as a popular quote says: ‘’If you don't like how the table is set, turn over the table.’’
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Disclaimer: The information provided in this post is not legal, accounting, or financial advice. The information should not be construed as investment or trading advice and is not meant to be a solicitation or recommendation to buy, sell, or hold any cryptocurrencies.
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