Many companies listed on Money advertise with us. Opinions are our own, but extensive compensation and research determine where and how companies can appear. Learn more about how we make money.
Bitcoin and other cryptocurrencies are in free fall. But how low will their prices fall?
Bitcoin, which peaked at $ 68,000 a coin in November, fell about 70 percent to $ 21,000 on Monday. Ether, the second largest cryptocurrency– the market value of the currency after bitcoin peaked at about $ 4,800, and then fell to about $ 1,200. In general, cryptocurrencies and tokens have been hit.
Of course, cryptocurrency is not alone. This month, the shares entered the bear market, and the bond market is gripped by great fear. See also: Crypo Shiba Inu: Duncan Gray ranks 5th in the top 10 influential people “SHIB”. But the cryptocurrency market is experiencing a particularly surprising decline compared to last year, when the market value fell from $ 965 billion to $ 2.6 trillion.
Cryptocurrency prices have always been based on how much investors thought they were worth at the time. So why do investors seem to be losing confidence?
“The reason for such strong pressure on cryptocurrency prices is now the same forces that shaped the growth of cryptocurrencies and why people were so excited about it. First of all,” said Madeline Hume, a senior analyst at Morningstar. “It’s a truly unique asset. This helped the cryptocurrency rise and hurt it on its way down. »
What happened to the cryptocurrency market?
In recent years, financial markets have benefited from government incentives and near-zero interest rates, making it easier for businesses and consumers to borrow and spend money and succeed in risky assets such as cryptocurrencies. See the article: This cryptocurrency allows you to buy before its price reaches $ 70.. These incentives have disappeared, and the Federal Reserve has recently raised interest rates by 0.75%, the largest increase since 1994 and the third increase in a year.
“We see this deployment of all risky rates, and cryptocurrencies have been the riskiest rate,” said Edward Moya, chief market analyst at OANDA, a multi-asset broker.
In addition, cryptocurrency exchanges often allow traders who wish to occupy a larger position in one cryptocurrency to secure their purchases with other types of cryptocurrencies. But those who are engaged in this activity called trade the margin risks automatically liquidating their investment when the price of a coin such as bitcoin falls below the threshold required to provide this permanent guarantee. In other words, exchanges will be forced to sell their clients’ positions when the cryptocurrency market falls.
There is also a great deal of distrust in the cryptocurrency market in general. Earlier this year, the cryptocurrency luna and its associated “stablecoin” crashed, destroying billions of dollars. Most recently, one of the largest cryptocurrency creditors, Celsius Network, has suspended withdrawals, trading and transfers between accounts, citing extreme market conditions.
When cryptocurrency prices were already falling sharply, the Celsius Network event really caught many people by surprise and accelerated the decline, says Hume.
How low can the price of bitcoin fall?
The stock market has a community of opposing investors looking for opportunities to buy when others sell and seize investments that seem undervalued. Think of Warren Buffett, who is known for taking the opposite view of momentum trading. Read also: Bitcoin bears will push the price of BTC even lower! Ahead, traders can expect a deeper bear market. (Impulse trading refers to the strategy of buying assets when they tend to grow and sell them at their peak, while investing in value chooses assets that seem to be traded at a price lower than their intrinsic value). The legendary investor advised investors to be afraid when others are greedy, and greedy when others are afraid.
But there is no comparable group of opposing investors in the crypto community, Hume said. There is a huge boost in cryptocurrency trading now, and there is no big community that says, “Hi, the basics are here, and now is a good time to buy,” Hume said. “Everyone is so worried that the next domino will fall.”
The true value of bitcoin may be unknown. But if the value of nearly $ 70,000 per coin was probably too high, $ 20,000 is probably too low, according to Chris Brandler, chief equity analyst at DA Davidson Companies, a capital markets firm.
He came to this conclusion based on research parameters such as the size of the bitcoin network, including the number of transactions and users.
“The level of activity and the political, corporate and institutional landscape that is so supportive of bitcoin and more willing to at least listen today makes me think we’re close to the bottom,” says Brandler. “But we never know.”
Ads for money. We may receive a refund if you click on this ad.
Worried about protecting your hard-earned financial assets?
Gold IRAs help protect your investment by providing the necessary asset diversification and stability. Click below to start investing today!
Can the price of bitcoin fall to zero?
According to Hume, the price of bitcoin – the largest and most popular cryptocurrency – is unlikely to fall to $ 0 per coin. The reason for this is that use cases have been identified, especially for the aforementioned warranties. Bitcoin has also become, for better or worse, a cryptocurrency gateway for much of traditional finance, she adds. For example, El Salvador became the first country to adopt bitcoin as the national currency in 2021, and Fidelity Investments recently announced that the company allows the use of bitcoin in plans 401 (k).
However, it is possible that investments in bitcoin and other cryptocurrencies may fall to zero, even if the price of these assets remains positive, says Hume. As ? There may be cases of default of creditors without proper security of their investors and without sufficient security.
Most recently, Harmony, which allows people to exchange coins between different blockchains, wrote on Twitter last week that hackers stole $ 100 million.
Is it possible to buy bitcoin?
When markets collapse, you can buy at a lower price.
Bitcoin is at a level where it is starting to look attractive, says Moya. He believes we are likely to see bitcoin traded at a key level, such as $ 20,000 per coin for some time. For the air, this level can be $ 1,000.
“There is still so much potential and opportunity in cryptography that you will not see the full abandonment of this space, despite these painful losses,” says Moya.
But if you want to take advantage of this low price, you have to be careful. Cryptocurrencies do not have fundamental estimates and depend on the mood of investors, which is very difficult to predict and predict. Financial advisors recommend not investing in risky assets such as cryptocurrencies if you are not ready to lose. Some advise not to allocate more than 2-5% of your portfolio to these digital assets.
For those who want to invest, use the ladder approach, Moya suggests. This can mean investing a small amount when the price of bitcoin is $ 20,000 per coin, just over $ 19,000 and more than $ 18,000.
But what if you can’t accept a 50% drop? Stay away from cryptocurrencies.